Africa and the World Trade Organization

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Africa and the World Trade Organization Mshomba provides a systematic study of Africa as it relates to the World Trade Organization (WTO). He examines the WTO’s enforcement Â�mechanism, its broadened mandate as illustrated by the Agreement on Trade-Related Aspects of Intellectual Property Rights, agriculture in the Doha Round, issues relating to transparency in government procurement, and the endeavor to streamline assistance to developing countries through an “Aid for Trade” initiative. The author integrates theory and practice, with a clear presentation of important economic concepts and a rigorous analysis of key issues and proposals. He presents African countries as having an important role to play in the WTO, especially as they actively engage in bargaining through various coalitions. Mshomba acknowledges that WTO negotiations will always be complex and at times contentious due to wide economic and political differences between countries. He views the differences, however, as creating opportunities for a mutually beneficial exchange of goods, services, and ideas. Richard E. Mshomba is Professor of Economics at La Salle University in Philadelphia. Born and raised in Tanzania, he received a Ph.D. in economics from the University of Illinois at Urbana-Champaign. His areas of research are development economics and international economics, with a focus on African countries. Mshomba is the author of Africa in the Global Economy (2000), a Choice Outstanding Academic Book. He is a frequent guest analyst on Voice of America on economic issues pertaining to Africa. He has also been a guest analyst on National Public Radio, Irish Public Radio (Radio Telefis Eireann), Radio Netherlands, and a number of other radio stations. He is a frequent contributor of op-ed pieces to The Arusha Times in Tanzania. â•… Mshomba was awarded the Pew Faculty Fellowship in International Affairs, John F. Kennedy School of Government, Harvard University, 1993–1994. He received the 2005 Lindback Award for Distinguished Teaching at La Salle University. Mshomba travels regularly to the Â�village where he grew up in Tanzania, where he and his wife are engaged in Â�educational and development initiatives.

Africa and the World Trade Organization Richard E. Mshomba La Salle University

CAMBRIDGE UNIVERSITY PRESS

Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo, Delhi, Dubai, Tokyo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521514767 © Richard E. Mshomba 2009 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2009 ISBN-13

978-0-511-67523-2

eBook (NetLibrary)

ISBN-13

978-0-521-51476-7

Hardback

Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

To the De La Salle Christian Brothers, for their dedication to education throughout the world.

Contents

List of Tables and Figures

page xi

Acknowledgments

xv

List of Abbreviations

xix

Map of Africa

xxii

1 Introduction . . . . . . . . . . . . . . . . . .å°“ . . . . . . . . . . . . . . . . . .å°“ . . . . . . . 1 A Short History of GATT and the WTO African Countries’ Membership in the WTO â•… and Various Coalitions

5 9

2 Dispute Settlement Understanding . . . . . . . . . . . . . . . . . .å°“ . . 25 The Dispute Settlement Procedure Disputes African Countries and the DSU Major Problems with the DSU Other Considerations Regarding the Low Level of African â•… Participation in the DSU Conclusion Case: The Advisory Center on WTO Law

27 31 37 46 66 87 90

3 Trade-Related Aspects of Intellectual Property Rights . . . . . . . . . . . . . . . . . .å°“ . . . . . . . . . . . . . . . . . .å°“ . . 100 A Theoretical Perspective on Patents Technology and Trade Developed and Developing Countries’ Perspectives â•… on Patents

[╇ vii╇ ]

102 104 106

Contents

Health Indicators in Africa Options Available to African Countries under â•… the TRIPS Agreement African Countries’ Proposals and Key Issues Regarding â•… Compulsory Licensing Conclusion

112 120 124 136

4 Agriculture in the Doha Round . . . . . . . . . . . . . . . . . .å°“ . . . . 143 The Importance of Agriculture in Africa Agricultural Policies in African Countries The Agreement on Agriculture The Doha Round OECD Subsidies and Special and Differential Treatment OECD Subsidies from a Long-Term Perspective Conclusion Case: Cotton Producers in Benin Squeezed by Domestic â•… Policies and OECD Subsidies

145 149 152 152 162 172 181 187

5 Transparency in Government Procurement . . . . . . . . . . . 200 The Size of Government Procurement The Agreement on Government Procurement (GPA): â•… A Plurilateral Agreement Economic Theory and Preferential Government â•… Procurement African Countries and the Agreement on Government â•… Procurement The Singapore Issues Reasons for African Countries’ Resistance to TGP The WTO Conference in Cancún Corruption in African Countries Formulating an Ideal Government Procurement Policy How the WTO Can Help African Countries Enhance â•… Their Government Procurement Policies Conclusion

201 203 209 214 215 219 225 226 231 240 242

6 Aid for Trade . . . . . . . . . . . . . . . . . .å°“ . . . . . . . . . . . . . . . . . .å°“ . . . . . 245 Magnitude of Government Aid to Africa From Aid for Development to Aid for Trade The Scope of the Aid for Trade Initiative

[╇ viii╇ ]

247 258 263

Contents

Rationale for Aid for Trade Effectiveness of Aid Implementing the Task Force Recommendations â•… for Aid for Trade Conclusion

264 270 277 289

7 Conclusion . . . . . . . . . . . . . . . . . .å°“ . . . . . . . . . . . . . . . . . .å°“ . . . . . . . 292 Bibliography

305

Index

321

[╇ ix╇ ]

tables and Figures

Tables 1.1 African Countries’ Membership in the WTO, ACP Group, LDC Group, and G33: December 2007 1.2 Percentage of African Countries in Various Groups: December 2007 1.3 Development Indicators and Aid-Dependency Ratios 1.4 Merchandise Trade Ratios and the Structure of Merchandise Exports: 2004 2.1 Number of Cases Brought to the WTO: 1995–2005 2.2 Requests for Consultations: January 1, 1995–Â�December 31, 2004 2.3 No Panel Established and No Notification of Settlement: January 1, 1995–December 31, 2004 2.4 Mutually Agreed-Upon Solutions or Inactive: January 1, 1995–December 31, 2004 2.5 Sums of Numbers in Tables 2.3 and 2.4 in Corresponding Cells: January 1, 1995–December 31, 2004

[╇ xi╇ ]

10 12 15 19 31 33

35 36

36

List of Tables and Figures

2.6 African Countries’ Key Preferential Access to the U.S. and EU Markets: January 31, 2006 Tariffs under Preferential Schemes 2.7 Average and Bound Tariff Rates 2.8 Membership in the ACWL: December 2006 2.9 2.10 Summary of Services Rendered by the ACWL: July 2001–December 2006 3.1 Members of the WTO and Signatories to the Paris, Berne, and Rome Conventions 3.2 Life Expectancy at Birth and Physicians per 1,000 People HIV/AIDS Estimates: 2005 3.3 3.4 People Receiving Antiretroviral Therapy as a Percent of Those in Need: 2005 4.1 Agriculture in Africa: 2004 4.2 Summary of Key Elements of the Harbinson Draft Proposal 4.3 Food Exports and Imports: 2003 or Latest Year for Which Data Were Available (Millions of Dollars) 4.4 Basic Economic Indicators for Benin: 2002 and 2003 4.5 Government Assistance to Cotton Producers (Millions of Dollars) 4.6 Impact of Eliminating Cotton Subsidies 5.1 Government Procurement Thresholds in Thousands of SDRs 5.2 Corruption Perception Index for African Countries: 1998–2005 5.3 Tender Adjudication Points for Previously Disadvantaged Individuals and Women in South Africa (A Numerical Example) 5.4 U.S. Statutory Federal Procurement Goals for Small Business [╇ xii╇ ]

75 77 83 92 95 110 113 115 119 146 154

175 188 191 197 207 229

234 236

List of Tables and Figures

6.1 Total ODA to the World by Recipient Region: U.S. Dollars (Million), 2003 Prices, Net Disbursements 6.2 ODA from the DAC to Africa by Recipient Country: U.S. Dollars (Million), 2003 Prices, Net Disbursements 6.3 ODA per Capita and ODA as a Ratio of GNI to African Countries: 2005 6.4 Top Ten Bilateral Donors to Africa: U.S. Dollars (Million), Current Prices, Net ODA Disbursements 6.5 Top Ten Donors by Share of Aid to Africa: U.S. Dollars (Million), Current Prices, Net ODA Disbursements 6.6 DAC Members’ Net Official Development Assistance: 2005, Current Prices 6.7 Classification of Sub-Saharan African Countries by Magnitude of the Value of Combined (Non-Oil) Preferences in the European Union, Japan, and United States Relative to Total (Non-Oil) Exports: 2002

248

249 254

257

258 259

269

Figures 3.1 HIV Prevalence in 2005 and Change in Life Expectancy between 1990 and 2005 4.1 Impact of an Export Subsidy by a Large Country 4.2 Impact on a Small Country of Removing Export Subsidies in OECD Countries 6.1 Regional Shares of Total Net ODA as a Percentage of the World Total ODA

[╇ xiii╇ ]

118 166 168 247

Acknowledgments

How shall I make a return to the Lord for all the good he has done for me? (Psalm 116: 12)

This book is literally the culmination of a lifetime of learning and the support of family, teachers, friends, priests and other religious workers, colleagues, schools, and universities. I was born and raised in the village of Sinon in Arusha, Tanzania. My constant prayer when I€was in primary school was that I would be selected to attend secondary school. In the 1960s in Tanzania, only 5 percent of those who finished primary school could go to secondary school. The idea that one day I would be a university professor was beyond my wildest dreams. Yet the foundation of my professional career is the education I received in those early years and the love and guidance of my parents. My mother and father were subsistence farmers; the memory of their strong work ethic, wisdom, and generosity continues to inspire me. I thank Ambrose and Flora Itika, Assumpta Ndimbo, and Daniel and Supera Njoolay for their unwavering support over the years. My profound gratitude goes to the wonderful Holy Ghost Fathers and especially to my hero, the late Bishop Dennis Durning. I would also like to thank Richard Geruson, my first economics professor, who advised me to major in economics and who has been a generous mentor to me. He has remained a close friend. My Â�profound gratitude also goes to my immediate and extended families – the Mshombas of Arusha, Tanzania; the Durnings of Glenside,

[╇ xv╇ ]

Acknowledgments

Pennsylvania; and the O’Hallorans of Cary, Illinois, whose prayers and encouragement I can always count on. I am also thankful for the support of Bishop Herbert Bevard and my fellow parishioners at St. Athanasius Catholic Church in Philadelphia. I am grateful to my colleagues in the Economics Department at La Salle University for their support as well. They share with me materials they come across that might be useful to my research. My special thanks go to David George, who took time away from his own research to read and discuss my manuscript and to offer insightful comments. It would not have been possible to complete this book in a reasonable amount of time without a generous research leave and sabbatical leave (two consecutive semesters) from La Salle University, for which I am very grateful. I also commend and thank La Salle’s librarians for their expertise and efficiency. The reference and inter-library loan librarians are simply the best. In conducting research for this book, I spent a few weeks in Geneva consulting with ambassadors, commercial attachés, and WTO officials. I am very thankful for their time and information. My special thanks go to Marwa Kisiri, Patrick Low, and Claudia Uribe for their insights and also for assisting me in making appointments with other officials. I would like to thank my students for their interest in my work. In particular, I am grateful to Peter Ajak and Christine Quinn, who read the manuscript and checked to be sure the bibliography was consistent with what is in the text. Christine also prepared the diagrams in Chapter 4. I would also like to thank Thomas Herrle, Christopher McNabb, and Gregory Robinson for the many conversations I have had with them on Africa and economic issues. I benefited tremendously from a review by Voxi Amavilah, who provided extensive and extremely helpful comments on each chapter. Amavilah is one of those rare individuals who assists you with your research and then thanks you for asking them for their help. I also benefited from my discussions and correspondence with [╇ xvi╇ ]

Acknowledgments

Michael D. Kerlin. In addition, I extend my sincere gratitude to two anonymous reviewers for their very useful comments. Their suggestions helped me with this manuscript and gave me ideas for my future research. I would also like to extend my heartfelt gratitude to my dear friend and colleague, Harvey Glickman, for his mentoring and valuable insights. It is an understatement to say that I could not have completed this book without the support of my wife, Elaine. She assumed a larger share of our responsibilities to allow me more time for research. She also edited and discussed the entire manuscript with me. Trained as a lawyer, she is keen on detail, organization, and clarity, which she helped provide with her painstaking editing. I€am also grateful to our sons – Alphonce, Dennis, and Charles – for their encouragement, curiosity, bike rides, playfulness, and humor. They were also helpful in other ways, ranging from verifying data to asking questions like, “if you can write a book that has so many words, why can’t you write a children’s book?” It goes without saying that individuals who have helped me with this book may not necessarily agree with my analyses and conclusions. I also take responsibility for any errors or omissions. – Richard E. Mshomba

[╇ xvii╇ ]

Abbreviations

ACP African, Caribbean, and Pacific Countries Advisory Center on WTO Law ACWL African Development Bank ADB African Development Fund ADF African Economic Research Consortium AERC African Growth and Opportunity Act AGOA AIDS Medicines and Diagnostics Service AMDS Aggregate Measure of Support AMS African Union AU Codex Alimentarius Commission CAC Common Fund for Commodities CFC Country Procurement Assessment Reports CPAR Corruption Perception Index CPI Catholic Relief Services CRS Development Assistance Committee DAC DAC-OECD Development Assistance Committee of the Organization for Economic Cooperation and Development Doha Development Agenda DDA DFID Department for International Development (United Kingdom) Dispute Settlement Body DSB Dispute Settlement Understanding DSU EBA Everything But Arms European Community EC [╇ xix╇ ]

List of Abbreviations

ECA Economic Commission for Africa European Currency Unit ECU Economic Partnership Agreements EPAs European Union EU Food and Agricultural Organization FAO Foreign Direct Investment FDI General Agreement on Trade in Services GATS General Agreement on Tariffs and Trade GATT Gross Domestic Product GDP Agreement on Government Procurement GPA Generalized System of Preferences GSP Human Development Index HDI Heavily Indebted Poor Countries HIPC IBRD International Bank of Reconstruction and Development International Cotton Advisory Committee ICAC International Court of Justice ICJ ICTSD International Center for Trade and Sustainable Development International Development Association IDA IF Integrated Framework for Trade-Related Technical Assistance for Least-Developed Countries International Labor Organization ILO IMF International Monetary Fund International Trade Center ITC International Trade Organization ITO Joint Integrated Technical Assistance Program JITAP LDC Least-Developed Countries Millennium Development Goals MDGs Most Favored Nation MFN New Partnership for Africa’s Development NEPAD National Institutes of Health (U.S.) NIH Organization of African Unity OAU Official Development Assistance ODA [╇ xx╇ ]

List of Abbreviations

OECD Organization for Economic Co-operation and Development Program for Building African Capacity for Trade PACT Previously Disadvantaged Individuals PDI PEPFAR President’s Emergency Plan for AIDS Relief (U.S.) Pharmaceutical Research and Manufacturers of PhRMA America Purchasing Power Parity PPP Poverty Reduction Strategy Papers PRSPs Southern African Development Community SADC Special Drawing Rights SDR SEATINI Southern and Eastern African Trade Information and Negotiations Institute SITC Standard International Trade Classification SONAPRA Societé Nationale pour la Promotion Agricole (Benin’s state-owned National Agricultural Promotion Company) Sector-Wide Approach SWAp Technical Barriers to Trade TBT Transparency in Government Procurement TGP Trade-Related Aspects of Intellectual Property TRIPS Rights Joint United Nations Program on HIV/AIDS UNAIDS UNCITRAL United Nations Commission on International Trade Law UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Program UNIDO United Nations Industrial Development Organization USAID U.S. Agency for International Development U.S. Department of Agriculture USDA World Health Organization WHO World Intellectual Property Organization WIPO World Trade Organization WTO [╇ xxi╇ ]

Europe

Azores

(Portugal)

Madeira (Portugal)

M

Canary Islands (Spain)

O

RO

CC

TUNISIA

O

A L G E R I A

Middle East

L I B Y A

WESTERN SAHARA

EGYPT

MAURITANIA

MALI

N I G E R ERI

CHAD

O

C Cabinda

(Yemen)

A ND

M

A

DEMOCRATIC REPUBLIC OF THE CONGO

UG A

GO

C

GABON

Socotra

L

CENTRAL AFRICAN REPUBLIC

ER EQUATORIAL GUINEA

SÃO TOMÉ & PRINCIPE

EA

ETHIOPIA

N OO

N

LIBERIA

TR

DJIBOUTI

NIGERIA

N

AN A

O TO G

GH

EA

COTE D’IVOIRE

BENI

G UI N

SIERRA LEONE

S U D A N

BURKINA FASO

IA

G

AL

THE GAMBIA GUINEABISSAU

SEN E

AM

CAPE VERDE ISLANDS

KENYA

S

O

RWANDA

(Angola)

BURUNDI SEYCHELLES

TANZANIA

Ascension I.

(United Kingdom)

BOTSWANA

1000

500 500

1500 1000

2000

AS CA R

U

A

SWAZILAND

2500 km 1500 miles

MA DA G

NAMIBIA

MOZ

ZIMBABWE

M

B

(United Kingdom)

0

I

Q

St Helena

E

WI

ZAMBIA

0

COMORO ISLANDS

M A LA

ANGOLA

SOUTH AFRICA

LESOTHO

Map of Africa Source:╇ Network Startup Resource Center (http://www.nsrc.org/ AFRICA/africa.gif). Reprinted by permission.

MAURITIUS Réunion (France)

1╇ Introduction

T

he objective of this study is to examine the world Trade Organization (WTO) – its enforcement mechanism; its broadened mandate, illustrated by the Agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPS); agriculture in the Doha Round of the WTO; the WTO’s pursuit of additional agreements; and its endeavor to streamline assistance to developing countries through an “Aid for Trade” scheme – all in the context of Africa. Before the WTO was established in 1995, few people knew there was an international organization that set trade rules. However, the WTO was preceded by and is a product of the General Agreement on Tariffs and Trade (GATT), in operation since 1948. The WTO has gained exposure and notoriety primarily from demonstrations against it at the WTO Ministerial meetings. These demonstrations are usually well orchestrated and manage to draw much media attention, often eclipsing the agenda items of the Ministerial meetings. Many trade economists who are usually quite comfortable with their theories have been put on the defensive as a result of the growing negative publicity that the WTO and globalization have received. Among them is the renowned Jagdish Bhagwati, who has published a book solely defending globalization (Bhagwati, 2004). However, criticism of the WTO is not necessarily a campaign against trade and globalization. The criticism is often targeted at the expanding mandate of the WTO, in terms of enforcement, [╇ 1╇ ]

Africa and the World Trade Organization

its broadening coverage, and the glaring asymmetry (in terms of the capacity to negotiate) between developing and developed countries. Nonetheless, before discussing the WTO, it is important to offer a few words about trade. There are opportunity costs for producing anything and, therefore, societies are constantly working out how best to use their scarce resources. Trade is one of the most important mechanisms through which countries can allocate their resources efficiently in a way that allows them to consume more than what they can produce domestically. For example, the United States is the largest consumer of coffee in the world, consuming about 20 percent of the world’s supply. However, the United States does not produce any coffee, even though it has the technology to produce it. Because it does not have a comparative advantage in the production of coffee, the United States finds it is cheaper to import coffee from miles away – from Brazil, Colombia, East Africa, and even Vietnam – than to produce it itself. The resources that would have been used to produce coffee in greenhouses are instead used to produce other goods and services. While the hypothetical example of producing coffee in the United States may be dismissed as absurd, it is not entirely different from the reality of the United States subsidizing domestic producers of sugar at a cost two to three times the price of importing it under free market conditions – a clearly inefficient allocation of resources. Trade, by its very nature, causes a reallocation of resources. Notwithstanding what trade theory postulates, resources are never perfectly mobile between industries or geographical locations. No matter how beneficial trade might be to the society as a whole, and perhaps even to everyone in the society in the long run, it always creates short-run losses for some. Therefore, it should not be surprising that in every country, there will always be people who will be against the trade of at least some goods or services. Goods and services are produced in various countries as well as under different labor, health, intellectual property, and [╇ 2╇ ]

Introduction

environmental laws and regulations. Although these differences contribute additional opportunities for trade, they are also sources of opposition to trade. Moreover, international trade involves countries that are large and small, high-skilled and low-skilled, rich and poor, democratic and authoritarian, land-locked and coastal, and so on. This diversity creates different approaches to trade, different impacts of trade, and different sensitivities to trade, adding yet another layer of complexity and potential for disagreement about trade rules. In addition, poor countries are often described by activist groups as unable to compete and, thus, as exploited – still another reason for voices against trade. The idea that poor countries cannot compete, however, is often the result of confusion between absolute advantage and comparative advantage. Consider the simple illustration below. Even if a country does not have an absolute advantage in producing anything, it will still have a comparative advantage in Â�producing some products. A country has an absolute advantage in producing a product if it can produce it at a lower absolute cost than its trading partners. Suppose on average a farmer in Senegal can produce 5 tons of cotton or 4 tons of peanuts, and on Â�average a farmer in the United States can produce 10 tons of cotton or 15 tons of peanuts. In this hypothetical example, the United States has an absolute advantage in producing both Â�products. Senegal, however, has a comparative advantage in the production of cotton. Comparative advantage refers to lower opportunity cost than that of competitors. Producers in one country have a comparative advantage if their opportunity cost in producing the product is lower, for whatever reason, than that of producers in another country. In the example above, the opportunity cost of producing a ton of cotton in Senegal is 0.8 tons of peanuts, whereas the opportunity cost of producing a ton of cotton in the United States. is 1.5€tons of peanuts. If Senegal and the United States traded according to [╇ 3╇ ]

Africa and the World Trade Organization

their comparative advantage, that is, Senegal exported cotton to the United States while the United States exported peanuts to Senegal, both countries would benefit. When producing goods or services according to their comparative advantage, both countries use their resources more efficiently. In other words, specialization on the basis of comparative advantage increases productivity and, therefore, the gains from trade. By steering countries toward an efficient use of resources, an infusion of new technologies, and greater competition, trade is an important tool for economic growth. Of course, economic growth is not automatic, considering that other factors, such as macroeconomic instability, civil war, or health pandemics, can drag the economy down. Even when trade leads to economic growth, it does not necessarily translate into real economic development, that is, improvement in people’s standard of living in terms of access to basic needs and social services. Trade is sometimes even blamed for a lack of development in some countries, as if trade were to have been a “magic bullet.” The reality is that trade must be complemented by other policies, including effective education and health policies, for economic growth to bring about development. Given the benefits of trade and, at the same time, the potential for arbitrary trade barriers, an international organization like the WTO can play a critical role in promoting fair and predictable trade rules and advocating for developing countries. Nonetheless, the WTO will always be a controversial organization and an easy target, no matter how constructive it might be, due to the diversity and multitude of trade issues and self-interests represented by various countries and groups. In addition, the debate over the WTO is often distorted by exaggeration and, sometimes, by pure noise and empty diplomatic gestures. It has become increasingly difficult to distinguish Â�genuine trade issues from propaganda and purely ideological stances. This book attempts to uncover and analyze some of the real issues Â�pertinent to African countries. [╇ 4╇ ]

Introduction

African countries have an ambivalent relationship with the WTO, of which they are a part. They understand the benefits of trade and the need for international agreements that guide and enforce trade rules. They appreciate the economies of scale of negotiating these agreements at the multilateral level. In addition, they are keenly aware of the financial and technical assistance and preferential treatment they receive as a result of the WTO initiatives. Despite these benefits, however, some elements of the WTO make African countries guarded or even resentful. Pressure, political maneuvering, and, at times, paternalism on the part of developed countries toward African countries seem to be salient features of the WTO. When the WTO was established, many African countries signed agreements without fully understanding them or their long-term potential impact. Of course, those agreements were softened by exceptions, extensions, and assistance for developing countries. Another source of skepticism has been the (perceived) small size of assistance and the unpredictable disbursement of the promised assistance. African countries are also concerned that the WTO coverage is increasingly having a more direct and broader impact on trade policies in Africa, thus reducing their domestic policy space.

A Short History of GATT and the WTO 1 At the end of the Second World War, nations made efforts to establish international institutions that would address political and economic issues in the world. The United Nations was founded in 1945 to promote peace and international cooperation. The International Bank for Reconstruction and Development (the World Bank) and the International Monetary Fund (IMF) were also established in 1945 to provide long-term and short-term loans, respectively. 1

The discussion for this section is drawn from Mshomba (2000).

[╇ 5╇ ]

Africa and the World Trade Organization

GATT was established in 1947 (and became operational in 1948) with the mission to liberalize world trade. GATT was formed from parts of the International Trade Organization (ITO), a proposed specialized agency of the United Nations. It was established with minimal institutional arrangements to expedite its approval because it was supposed to be temporary. Its functions were ultimately to be assumed by the ITO. However, the ITO never came into existence because the U.S. Congress refused to ratify it, claiming it would undermine its national sovereignty in trade policy. Opposition in the United States was so strong that President Truman did not even bother to send the proposal to the Congress. Twenty-three countries signed the original treaty establishing GATT in 1947.2 In addition, participation in GATT was extended to colonies of GATT members, under Article XXVI:5 of GATT. GATT contracting countries applied this provision to all their colonies in Africa, with one exception. France did not apply this provision to sponsor Morocco to participate in GATT (Tomz et al., 2005). Thus, by extension, nearly all African countries were part of GATT from its very inception.3 To the extent that colonialism was fundamentally an exploitative political and economic system, the extension of GATT’s rights and obligations to the colonies was also seen as a means for exploitation. This history has contributed to the suspicion and skepticism with which African countries came to accept GATT and its successor, the WTO.

2

3

Governments that signed to establish or join GATT were officially known as contracting countries (parties). Signatories of the WTO are known as WTO members. The twentythree founding countries of GATT were Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, South Africa, Southern Rhodesia, Syria, United Kingdom and the United States. http://www.wto.org/english/thewto_e/ minist_e/min96_e/chrono.htm South Africa and Southern Rhodesia (Zimbabwe) were among the original contracting countries of GATT. However, these countries were under minority White rule that was notoriously repressive of Africans.

[╇ 6╇ ]

Introduction

A colony to which GATT benefits and obligations were applied had three options when it achieved independence: (a) join GATT immediately as a full contracting party; (b) establish de facto participation status while deciding about its future domestic trade policy; or (c) simply end its participation in GATT. As of December 31, 1993, there were 114 fully contracting parties plus 19 de facto participants in GATT (U.S. International Trade Commission, 1994: 41). While GATT was technically only a provisional treaty throughout its 48 years of existence, over time it actually amounted to an increasing number of complex agreements, administered and enforced by its operating body. These agreements were designed to reduce barriers to trade. There were eight rounds of Â�multilateral trade negotiations under GATT, including the Uruguay Round (1986–1993), from which the WTO was born. The first seven rounds of negotiations were held as follows: (1) in Geneva in 1947; (2) in Annecy, France, in 1949; (3) in Torquay, England, in 1950–1951; and (4) through (7) in Geneva, in Â�1955–1956, Â�1961–1962 (the Dillon Round), 1964– 1967 (the Kennedy Round), and 1973–1979 (the Tokyo Round), respectively (Raj, 1990). Each round of negotiations sought and accomplished, to varying degrees, a reduction of trade barriers among members. It is estimated that the first six rounds of negotiations reduced average tariffs in developed countries from about 40 percent to about 8 percent (Laird and Yeats, 1990). The seventh round, the Tokyo Round, was relatively farther reaching in scope. In addition to reducing tariffs, it also reduced non-tariff barriers. These included government procurement requirements, restrictive licensing procedures, and health and safety standards which created unnecessary obstacles to international trade. This achievement was important because as average tariff rates in industrial nations decreased, the propensity to use non-tariff barriers increased. Under the Tokyo Round, industrial countries also reduced their tariffs by a weighted [╇ 7╇ ]

Africa and the World Trade Organization

average of 36 percent over a period of 8 years, bringing their average tariff to about 5 percent. Like the rounds preceding it, however, the Tokyo Round of negotiations failed to integrate textiles and apparel and agriculture into GATT. Inclusion of these areas was not to come until the last round of multilateral trade negotiations under GATT, the Uruguay Round. The Uruguay Round was launched in 1986 and concluded on December 15, 1993. A new international organization, the WTO, was established through the Uruguay Round to replace GATT. The WTO went into effect on January 1, 1995. The WTO facilitates the implementation, administration, and operation of agreements. It also brings all rules and agreements reached under GATT into a single body of operation. Under the WTO, member countries subscribe to all of its rules and agreements. This is an important departure from the old system under GATT, whereby members could pick and choose the agreements to which they wanted to subscribe. “Whereas, in the past, countries could take an à la carte approach to the agreements, membership of the WTO implied membership of all its multilateral agreements” (Raby, 1994: 13). Actually, four plurilateral agreements remained when the WTO came into existence – the Agreement on Government Procurement, the Agreement on Trade in Civil Aircraft, the International Dairy Agreement, and the International Bovine Meat Agreement. The last two were terminated in 1997, because matters relating to those areas could be dealt with by the Agreements on Agriculture and on Sanitary and Phytosanitary.4 Nonetheless, countries were under pressure to sign all other agreements. This pressure was felt more acutely by developing countries because the WTO agreements included

4

Unlike a multilateral agreement which is binding on the entire membership of GATT/ WTO, a plurilateral agreement is binding only on those countries that have decided to be signatories of the agreement.

[╇ 8╇ ]

Introduction

intellectual property and trade in services, areas in which developed countries have comparative advantage. Another significant change under the WTO was that the dispute settlement procedures were streamlined and unified. The procedures restrain nations from taking unilateral actions in addressing disputes, as discussed in Chapter 2. A basic principle of the WTO and its predecessor, GATT, is non-differentiated treatment, commonly called the most favored nation (MFN) principle. The MFN principle means a member country must treat all other members equally in respect to trade policy. If a member country lowers the tariff rate on a commodity entering from one member country, for example, it must likewise lower the tariff rate on that commodity from all other member countries. Exceptions to the MFN rule are made for preferential tariff treatment for developing and least-developed countries, and for free trade areas and other levels of economic integration.

African Countries’ Membership in the WTO and Various Coalitions As of December 2007, the WTO had 152 members, including 42 African countries. In addition, there were 31 observer governments, including nine African countries. Only two African Â�countries – Eritrea and Somalia – had neither membership nor observer status. De facto participation is not an option under the WTO. African countries in the WTO have formed a coalition called the African Group. Many of them also belong to several other coalitions, including the African, Caribbean, and Pacific Countries (ACP) Group, the Least-Developed Countries (LDC) Group, the G77, and the G33 (the latter two are discussed below), as shown in Tables 1.1 and 1.2. The African Group, the ACP Group, and the LDC Group also coordinate under an umbrella group called the G90. [╇ 9╇ ]

Africa and the World Trade Organization

table 1.1╇ African Countries’ Membership in the WTO, ACP Group, LDC Group, and G33: December 2007 Country Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Comoros Congo, Dem. Rep. of Congo, Rep. of Côte d’Ivoire Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Madagascar Malawi Mali

WTO Member (x) Observer (o)

ACP

LDC

o x x x x x x x

x x x x x x x

x x

x

x x o

x x x

x x x

x x x x x

x x x x

x

o

x x x x x x x x x x x

x x

x x x

x x x

o x x x x x x x o o x x x

[╇ 10╇ ]

G33

x x

x x

x x

x

x x x x x x x

x

Introduction

table 1.1╇ (continued) Country Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda Sao Tomé and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe 1

WTO Member (x) Observer (o)

ACP

LDC

x x

x

x x x x x

x

x x x x x x x x o x o x

x x x x x x x x x x

x o x x x x x x x

x x x

G33 x x

x x x x x

x

x x x x x

x

x x

x x x

The economy of Zimbabwe deteriorated precipitously in the 2000s to the extent that in June of 2006, the United Nations Committee for Development Policy recommended that Zimbabwe be downgraded to the status of a least-developed country. However, the government of Zimbabwe refused to give its consent to be downgraded (Deen, 2006). Sources: WTO members, http://www.wto.org/English/thewto_e/whatis_e/tif_e/org6_e.htm. ACP states, http://www.acpsec.org/en/acp_states.htm. Least-Developed Countries list, http://www.un.org/special-rep/ohrlls/ldc/list.htm. G33 members, http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd04_ groups_e.htm#key. 1

[╇ 11╇ ]

[╇ 12╇ ]

152 79

WTO ACP Least-Developed Countries G77 G33 34 53 14

42 48 68 40 33

28 61

Percentage of African Countries

33 102 42

152 57

Total

26 42 14

42 39

African Countries

79 41 33

28 68

Percentage of African Countries

Group Members that are also WTO Members

Sources: WTO members, http://www.wto.org/English/thewto_e/whatis_e/tif_e/org6_e.htm. ACP states, http://www.acpsec.org/en/acp_states.htm. Least-Developed Countries list, http://www.un.org/special-rep/ohrlls/ldc/list.htm. G77 members, http://www.g77.org/doc/members.html. G33 members, http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd04_groups_e.htm#key.

50 133 42

Total

Group

African Countries

Total Membership

table 1.2╇ Percentage of African Countries in Various Groups: December 2007

Introduction

In terms of numbers, African countries enjoy significant representation in the WTO through various coalitions, as shown in Table 1.2. As of December 2007, African countries represented 28 percent of the WTO membership. Fifty countries were classified by the United Nations as least developed, of which 33 were WTO members. Of the 33 least-developed WTO member countries, 26 were African. All African countries except five in North Africa (Algeria, Egypt, Libya, Morocco, and Tunisia) are members of the ACP Group. The G77 is a coalition of developing countries founded in 1964 to promote their interests in multilateral negotiations at various forums. The membership of the G77 grew from 77 countries when it was founded to 133 countries in 2007. All 53 African countries are members of the G77. The G33 is a coalition of a subset of developing countries in the WTO that has focused on negotiations on agriculture, particularly on special products and a special safeguard mechanism. The practice of belonging to these and other coalitions is explained by history, geography, common broad economic interests, and the efficiency of sharing information and scarce resources. More importantly, it is necessitated by the desire to have some leverage in the WTO negotiations. Leverage for African countries usually comes from their sheer number and the merits of their arguments, not from economic strength. Exports and imports of most African countries are miniscule proportions of world trade. For example, in 2004, Sub-Saharan African countries in aggregate contributed only 1.6 percent of world exports, half of it Â�originating from Nigeria and South Africa. Excluding Nigeria and South Africa, exports of SubSaharan Africa in 2004 were slightly less than those of Poland (World Bank, 2005: 298–299). The negative side of belonging to this multiplicity of coalitions is that it spreads thin the scant diplomatic and technical resources that African countries possess. In fact, proposals from these coalition groups are usually the product of a few core countries in a [╇ 13╇ ]

Africa and the World Trade Organization

group, with the core countries determined by technical capacity, the personalities and experience of diplomats and commercial attachés, and what is at stake. While African countries have been able to build coalitions among themselves and with other countries, these coalitions are often tenuous due to the diversity of African countries and their diverse economic interests. Some of the diversity regarding agricultural subsidies is discussed in Chapter 4. Table 1.3 reveals a very wide range of economic diversity among countries in terms of economic indicators. The Human Development Index (HDI) is calculated based on life expectancy at birth, the average number of years of schooling, and gross domestic product (GDP) per capita in purchasing power parity (PPP).5 While most African countries are ranked in the lowest range of the HDI, seven African countries have an HDI of over 0.7.6 Table 1.3 also lists the aiddependency ratios (aid as a percent of gross national income), which show how heavily dependent some African countries are on foreign aid. On average, the ratio of the GDP per capita of the five “poorest” African countries to that of the five “richest” African countries is about 1 to 22. These economic disparities manifest themselves in many other ways, such as in greatly differing manufacturing capacities and shares of exports within regional blocs. Economic integration in some regional blocs has been delayed due to these 5

6

The HDI for 2004 ranked 177 countries. Norway was ranked number one with the highest HDI of 0.965. Most African countries were ranked lowest. Except for East Timor (142nd), Yemen (150th), and Haiti (154th), the 140th to 177th positions were taken by African countries. This is only an illustration of the disparity and must be understood with caution. The HDI (and even more so, the GDP per capita) in its aggregate form does not capture other aspects of development and certainly does not capture development inequalities within countries. For example, the United Nations Development Program (UNDP), the organization that calculates and publishes the HDI, reports that, “Kenya has an HDI that ranges from 0.75 in Nairobi (almost on par with Turkey) to 0.29 in Turkana, a pastoral area in the north of the country. If Turkana were a country, it would be off the current HDI by a considerable margin, reflecting the region’s recurrent droughts, poor access to health and water infrastructure and high malnutrition rates” (UNDP, 2006: 271).

[╇ 14╇ ]

Introduction

table 1.3╇ Development Indicators and Aid-Dependency Ratios

Country

Seychelles Mauritius Libya Tunisia Algeria Cape Verde Egypt Equatorial Guinea South Africa Morocco Gabon Namibia Sao Tomé and Principe Botswana Comoros Ghana Congo, Rep. of Sudan (Northern) Madagascar Cameroon Uganda Swaziland Togo Lesotho Djibouti

HDI

GDP per Capita Dollars (PPP* )

2004

2004

2000–2004

2004

0.842 0.800 0.798 0.760 0.728 0.722 0.702

16,652 12,027 7,570 7,768 6,603 5,727 4,211

1.1 1.0 2.0 4.3 4.8 2.5 3.5

n.a. 0.6 0.1 1.2 0.4 n.a. 1.9

0.653 0.653 0.640 0.633 0.626

20,510 11,192 4,309 6,623 7,418

2.5 3.2 4.5 2.2 3.2

n.a. 0.3 1.4 0.6 3.1

0.607 0.570 0.556 0.532

1,231 9,945 1,943 2,240

2.0 0.8 2.4 4.8

n.a. 0.5 n.a. 15.4

0.520

978

3.4

3.5

0.516 0.509 0.506 0.502 0.500 0.495 0.494 0.494

1,949 857 2,174 1,478 5,638 1,536 2,619 1,993

6.0 0.9 4.6 5.8 1.7 2.6 n.a. 1.8

4.5 28.8 5.4 17.3 4.9 3.0 6.3 n.a.

GDP Average AidAnnual Dependency Growth Ratios (AID/ Rate GNI** )

(continued) [╇ 15╇ ]

Africa and the World Trade Organization

Table 1.3╇ (continued)

HDI

GDP per Capita Dollars (PPP*)

2004

2004

Zimbabwe1

0.491

2,065

Kenya Mauritania Gambia Senegal Eritrea Rwanda Nigeria Guinea Angola Tanzania Benin Côte d’Ivoire

0.491 0.486 0.479 0.460 0.454 0.450 0.448 0.445 0.439 0.430 0.428 0.421

1,140 1,940 1,991 1,713 977 1,263 1,154 2,180 2,180 674 1,091 1,551

Zambia Malawi Congo, Dem. Rep. of Mozambique Burundi Ethiopia Chad Central African Republic GuineaBissau Burkina Faso Mali Sierra Leone Niger

0.407 0.400

943 646

−1.5 4.4 1.8

0.391 0.390 0.384 0.371 0.368

705 1,237 677 756 2,090

3.5 8.5 2.7 3.7 14.3

28.6 21.4 54.6 23.0 11.8

0.353

1,094

−1.4

7.9

0.349 0.342 0.338 0.335 0.311

722 1,169 998 561 779

2.9 5.2 6.3 15.8 4.1

28.3 12.7 12.2 34.3 17.5

Country

[╇ 16╇ ]

GDP Average AidAnnual Dependency Growth Ratios (AID/ Rate GNI**) 2000–2004 −7.0 1.5 5.3 2.5 4.6 3.3 5.1 4.9 2.9 8.1 6.8 4.5

2004 4.0 4.0 11.1 16.0 13.9 28.5 25.8 1.0 7.3 6.6 16.2 9.3 1.0 21.2 25.9

Introduction

Table 1.3╇ (continued)

Country

World Low-income countries Sub-Saharan Africa South Asia

HDI

GDP per Capita Dollars (PPP*)

2004

2004

2000–2004

2004

0.741 0.556

8,833 2,297

2.5 5.4

0.2 2.8

0.472 0.599

1,946 3,072

3.9 5.8

5.3 0.8

GDP Average AidAnnual Dependency Growth Ratios (AID/ Rate GNI**)

Zimbabwe’s economy suffered a catastrophic decline in the 2000s. By the end of 2007, it had the lowest GDP per capita (PPP) in Africa – less than $200 – and the end of this trend was nowhere in sight. * Purchasing power parity (PPP) takes into account countries’ different relative costs of living and inflation rates. ** GNI, gross national income; n.a., not available. Source:╇ UNDP (2006) for HDI and GDP per capita; World Bank (2005) for GDP growth rates; and World Bank (2006) for aid-dependency ratios.

1

disparities, which often cause friction, jealousy, and contempt among African countries. In addition, some countries are engaged in cross-border conflicts. Nonetheless, it is apparent that when faced with a common challenge, African countries can put their differences aside and speak in unison as the African Group. Their common historical background of colonialism enables them to forge a united position on a number of issues. Moreover, they also share some �unifying �economic �similarities (attributed, in part, to colonialism). For example, they all tend to be highly trade oriented, as shown in Table 1.4 by the high merchandise trade ratios, that is, the sum of exports and imports as a percent of GDP. They all depend heavily on the countries of the Organization for Economic Cooperation and [╇ 17╇ ]

Africa and the World Trade Organization

Development€(OECD) as markets for their exports and imports.7 About 70 percent of African countries’ exports are destined for OECD countries. It is clear from Table 1.4 that agriculture is the most important economic sector in generating export revenue for many African countries. Therefore, it should not come as a surprise that agriculture has featured prominently in the Doha Round, and that trade policies of the OECD countries are of the utmost importance to African countries. Many factors complicate negotiations for African countries in the WTO. One is the friction between developed countries themselves. The recurring impasse on agricultural policies is due in no small measure to disagreements between the United States and the European Union. It is not unusual for African and other developing countries to be standing on the sidelines waiting for the major powers to reach a compromise before they can join in the negotiations. Another factor is the diversity of African countries’ interests, as alluded to above. While, in general, African countries place a high premium on the unity of the African Group, their interests vary and are sometimes in conflict with each other. Therefore, efforts of an African country toward a given outcome can vary from that of being an advocate at the forefront to indifference and even sabotage through bilateral agreements. Yet another complicating factor in negotiations is that African countries are lumped together with other developing countries. Developed countries may want to give additional preferential treatment to African countries, but that may not always be possible without giving the same treatment to other developing countries. For example, the apprehension of developed countries regarding 7

As of 2008, the OECD had 30 members: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea (South), Luxemburg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.

[╇ 18╇ ]

Introduction

table 1.4╇ Merchandise Trade Ratios and the Structure of Merchandise Exports: 2004 Structure of Exports – Percentages of Total**

Country/ Countries Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Central African Republic Chad Congo, Dem. Rep. of Congo, Rep. of Côte d’Ivoire Egypt Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya

Food and Agricultural Merchandise Raw Fuels, Ores, Trade Ratio* Materials and Minerals Manufactures 60 104 38 76 33 34 33

0 ╇╇╇ 0*** 90 n.a. 88 93 43

97 ╇╇╇ 93*** 0 n.a. 4 2 52

2 ╇╇╇ 6*** 9 n.a. 8 5 5

21 70

27 n.a.

36 n.a.

37 n.a.

50 129 66 26 74 47 66 54 78 36 60 45 162 231 91

n.a. n.a. 65 17 n.a. 88 11 70 82 3 n.a. 52 n.a. n.a. ╇╇╇ 1***

n.a. n.a. 13 47 n.a. 1 82 3 4 72 n.a. 27 n.a. n.a. ╇╇╇ 95***

n.a. n.a. 20 31 n.a. 11 7 27 14 25 n.a. 21 n.a. n.a. ╇╇╇ 4*** (continued)

[╇ 19╇ ]

table 1.4╇ (continued) Structure of Exports – Percentages of Total**

Country/ Countries Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda Senegal Sierra Leone South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe World Low-income countries Sub-Saharan Africa South Asia

Food and Agricultural Merchandise Raw Fuels, Ores, Trade Ratio* Materials and Minerals Manufactures 51 66 50 53 79 55 57 75 30 48 21 55 40 49 37 163 35 88 80 31 69 87 45

67 83 ╇╇╇ 98*** n.a. 27 21 25 49 34 0 59 38 93 11 16 23 66 40 12 79 26 47 9

9 0 ╇╇╇ 0*** n.a. 0 10 71 8 57 98 30 23 0 31 81 1 14 13 11 5 64 25 11

22 16 ╇╇╇╇ 2*** n.a. 71 69 3 41 8 2 10 39 7 58 2 76 20 47 78 15 10 28 77

38

18

31

50

55 28

19 12

49 11

31 76

* (Exports + imports)/GDP *100. ** May add up to less or more than 100 due to rounding. *** The data are for 1990. n.a., not available. Source:╇ World Bank (2006).

[╇ 20╇ ]

Introduction

the utilization of compulsory licensing to acquire generic drugs was rooted in the potential abuse by and competition from countries like Brazil, China, and India, and not so much in losing African countries as a market for patented drugs. (Compulsory licensing is discussed in Chapter 3.) Perhaps the most important complicating factor is that African countries receive preferential treatment and substantial financial aid from their historical nemeses – developed countries. Negotiations in the WTO are not isolated from other interactions with developed countries. Many African countries are dependent on aid from OECD countries, as shown in Table 1.3. In 2004, the ratio of aid per capita (i.e., aid from OECD countries) to gross national income per capita was more than 10 percent in more than 20 countries. Only a naïve diplomat would approach WTO negotiations single-mindedly, without considering the country’s aid dependency. Moreover, developed countries have direct and subtle ways of reminding African countries of the assistance and benefits they are receiving or have been promised. This Â�dependency on aid compromises what little leverage African countries might have. Nonetheless, African countries are seeking even more assistance through the WTO’s Aid for Trade initiative. Promises and commitments for various forms of aid to developing countries sweeten all WTO agreements. The accompanying aid or technical assistance is usually to assist recipient countries in amending their legislation and enacting new laws to conform to the agreements. Dissatisfaction with the size and sometimes incoherent nature of assistance promised by WTO members is the reason behind the Aid for Trade program through which assistance to developing countries will be enhanced and better coordinated. ■  ■  ■

So many trade agreements and related issues fall under the realm of the WTO that any book on the WTO can cover only a [╇ 21╇ ]

Africa and the World Trade Organization

small percentage of them. This book is no exception. What follows is an overview of the topics chosen for this book and its organization. Chapter 2 examines the operation of the WTO’s dispute settlement mechanism and explores factors that have limited African countries’ utilization of the mechanism. It also analyzes some of the proposals submitted by the African Group regarding the Dispute Settlement Understanding (DSU). The DSU is the lead chapter because it clearly distinguishes the WTO from its predecessor, GATT, and fosters commitment to and enforcement of all other agreements. Discussion of this agreement also plainly reveals the wide differences that exist between African countries and developed countries. The chapter ends with a case study of the services of the Advisory Centre on WTO Law (ACWL). Chapter 3 provides a theoretical and historical perspective on patents and examines the TRIPS Agreement in relation to public health care. This agreement reflects the broadening scope of the WTO, when compared to GATT. The TRIPS Agreement provides a uniform standard to protect intellectual property rights. The focus of the chapter is on the minimum standard to protect patents and on provisions meant to ensure that countries are not constrained by patents in dealing with public health care crises. The agreement is of the utmost relevance to African countries because of the inherent tension that exists between the protection of intellectual property rights (the priority of developed countries) and access to cheap medicines (the priority of African countries). In addition, the discussion on the TRIPS Agreement serves to show the progress African countries are making in terms of their capacity to negotiate. Chapter 4 considers the agricultural sector, the most important economic sector in Africa, in the context of the Doha Round, launched in 2001. This chapter studies the potential impact on African countries of reducing agricultural subsidies in developed countries, taking into account special and preferential treatment [╇ 22╇ ]

Introduction

extended to African countries. The Doha Round of negotiations has suffered a number of setbacks, due in no small part to disagreements on the extent to which there should be reforms of domestic policies and preferential treatment in agriculture. The chapter ends with a case that examines the effects of the confluence of domestic and external policies on the cotton industry in Benin. Chapter 5 examines the pursuit of an agreement on transparency in government procurement and discusses why African countries resist such expanded coverage of the WTO. Given that governments buy many goods and services, government procurement policies can be significant in fostering infant industries, especially in developing countries. Yet such policies can also serve as important trade barriers. A plurilateral Agreement on Government Procurement already exists. Developed countries would like to see a multilateral agreement, at least on transparency in government procurement. African countries are concerned, however, that such an agreement would hinder them in developing certain industries. If history is a guide, there will be new agreements in the future, and this is likely to be one of them. The issue of government procurement also raises important questions regarding government corruption in Africa, a topic that is becoming increasingly taboo in diplomatic circles. An official with the WTO Secretariat told the author that political correctness has effectively forbidden the use of the “c” word (“c” for corruption) in formal WTO negotiations, when describing conditions in developing countries. Chapter 6 discusses the Aid for Trade program, an endeavor by the WTO to improve and streamline assistance to developing countries. A recurring theme when one speaks with African trade officials is that African countries need assistance to increase their capacity to take advantage of the WTO agreements and the Â�preferential treatment accorded to them. They wonder, for example, how useful the Generalized System of Preferences (GSP), the [╇ 23╇ ]

Africa and the World Trade Organization

African Growth and Opportunity Act (AGOA), or Everything But Arms (EBA) will be if they cannot increase their capacity to �produce and export more. An objective of the Aid for Trade program is to reduce supply-side constraints in developing countries. This is an important initiative for Africa, given its potential to increase the export capacity of African countries and improve relations between African countries and developed countries in the WTO. Chapter 7 is the conclusion.

[╇ 24╇ ]

2╇ Dispute Settlement Understanding

T

he dispute settlement understanding (dsu), Annex€2 of the WTO Agreement, represents a major, if not the major, difference between the WTO and its predecessor, GATT. It provides a coherent and predictable timetable and system of consultation and enforcement of WTO obligations intended to reduce trade barriers and price-distorting policies and to maintain minimum uniform standards. Initially, under GATT, dispute settlements were processed primarily through diplomatic channels, but over time, they became more adjudicatory (Hudec, 1990 and 1993; Jackson, 1998; Zimmermann, 2005). However, this mechanism was significantly limited because each and every stage of the dispute settlement process – that is, referral of a dispute to a panel procedure, adoption of the panel report, and authorization of the countermeasures – required a positive consensus (WTO, 2003). This meant that the process could be delayed or blocked by a respondent or a losing party. Still, as Jackson (1998) points out, by the mid-1980s it was diplomatically very difficult for a respondent to block a request for a panel procedure. Even the blockage of panel reports was more rare than one would have expected. In a theoretical model by Chang (2002), the low propensity of blocking panel rulings is explained by diplomatic costs and the low degree of legal controversy.

[╇ 25╇ ]

Africa and the World Trade Organization

However, as the degree of legal controversy increased following agreements on non-tariff barriers of the Tokyo Round Â�(1973–Â�1979), the incidence of blockage of panel rulings also increased. Each contracting party still had veto power to delay or block the dispute process or a panel report. Another important shortcoming of the dispute settlement system under GATT was that the system was not integrated; the dispute settlement mechanism was not unified. Consequently, just as member countries could take an à la carte approach to selecting agreements on which to sign off, they could strategically use a similar approach in selecting a dispute settlement mechanism that would suit them best. In addition, the Tokyo Round created the possibility of one complaint being processed simultaneously through more than one mechanism, thus creating the potential for additional disputes over which mechanism to use. The Tokyo Round of negotiations produced plurilateral agreements, referred to as the “Tokyo Round Codes,” which contained code-specific dispute settlement procedures (WTO, 2003, Chapter 2). Plurilateral agreements are those to which not all GATT/WTO members Â�subscribe; rather, only subsets of the member countries subscribe to them. Establishing strict enforcement of agreements in international organizations is often an impossible task because of fear of undermining national sovereignty. Such fear is the main reason that the International Trade Organization (ITO), conceived of in 1947, was never ratified. Instead, GATT, which was a more loosely structured and less restrictive body, was adopted as a provisional treaty. GATT operated in a provisional status for almost five decades, from 1948 to 1994. Thus, it is no small accomplishment that the DSU was adopted. It reinforced the panel procedure and, at the same time, safeguarded the process by establishing an appellate procedure, as will be discussed in the section below. The WTO removed the inherent veto power, initially enjoyed by all contracting parties, to block [╇ 26╇ ]

Dispute Settlement Understanding

the process or a panel report. In fact, it completely reversed the Â�consensus procedure. A panel report or an Appellate Body ruling is automatically adopted unless there is a consensus against the ruling. Such a consensus is virtually impossible, considering the interests of the winning party. The DSU has also integrated the€dispute settlement system, thus removing an à la carte approach to dispute settlement and eliminating the possibility of launching multiple disputes regarding the same case under various agreements.

The Dispute Settlement Procedure The dispute settlement procedure can consist of as many as five stages, with a timetable as follows: the consultation stage, up to 2 months; the panel stage, 6 to 11 months; the appellate stage, 2 to 4 months; the compliance stage, up to 15 months; and the compensation and suspension of concessions stage, indeterminate. The procedure can end at any stage. At the first stage, the consultation stage, a complainant Â�submits a written request for consultations with a member that: (a) is detected to have breached an obligation and (b) whose infringement causes an adverse effect. “In cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment” (Article 3.8 of DSU). There is a presumption that failure to observe an agreement makes void or reduces benefits accruing to the complainant under that agreement. Therefore, the defending country has the burden to rebut the charge and is required to reply and enter into consultations within 10 days and 30 days, respectively, after receiving the request for consultations. If the defending country fails to meet either deadline, or if consultations fail to produce a settlement within 60 days after the receipt of the request for consultations, the complainant may request a panel. [╇ 27╇ ]

Africa and the World Trade Organization

The panel stage involves establishing a panel and terms of reference, determining a timetable for the panel process including submission of written reports by parties to the dispute, assessing the facts of the case, and submitting a report. The panel is composed of three panelists, though a panel can be composed of five panelists if there is mutual agreement between the parties to the dispute. Deliberations of the panel are confidential. The panel is expected to submit its final report within 6 months (and no more than 9 months) after composing the panel and establishing the terms of reference. The panel report (ruling) is to be adopted within 60 days after its circulation, unless one of the parties in the dispute has given notification of an appeal. The appellate stage is clearly a refinement of the dispute settlement mechanism that prevailed under GATT. This stage involves the work of the Appellate Body, whose proceedings are also confidential. The appellate review is “limited to issues of the law covered in the panel report and legal interpretations developed by the panel” (Article 17.6 of DSU). The Appellate Body has 60 days (and no more than 90 days) from the date of notification of an appeal to the time it circulates its report. The report is subsequently adopted within 30 days unless there is a consensus against the ruling, something that is almost impossible to achieve. The compliance stage involves implementation of the ruling and recommendations of the panel report, if there is no appeal, or of the Appellate Body. Compliance is expected to be swift and completed within 15 months. The Dispute Settlement Body (DSB) maintains surveillance of the implementation of the recommendations and rulings. Compensation and suspension of concessions is the final stage in the legal framework of the DSU. While this stage is necessary in order to put some teeth into the mechanism, in an ideal situation, it would not be necessary. Its main purpose is to induce compliance and, therefore, to the extent that it is effective, [╇ 28╇ ]

Dispute Settlement Understanding

this stage, just as those preceding it, is expected and meant to be temporary. If a defending country fails to comply with the recommendations and rulings, it may negotiate compensation with the complainant. If such negotiations do not produce mutually acceptable compensation or yield compliance, the DSB can authorize the complainant to suspend concessions or other obligations to the country that was found in breach of the rules. In plain language, the complainant can be authorized to retaliate, for example, by placing trade barriers on goods from the country determined to be in infringement. In principle, retaliation should be in the same sector in which the defending country has been found in violation. Of course, not all cases are treated the same. The dispute settlement mechanism has additional arrangements for handling disputes that involve multiple complainants, third parties,1 perishable goods and other cases deemed urgent, and developing countries. The discussion that follows focuses on provisions for developing countries. In line with other WTO agreements, the DSU seeks to acknowledge cases involving developing countries as “handle with care” cases. Favorable differential treatment for developing countries is invoked in seven of the twenty-seven articles of the DSU, including Article 24, devoted to special procedures for the least-developed countries.2 These provisions call for special attention to problems and interests of developing countries and for legal assistance to those countries. If a complaint is against a developing country, that developing country is to be given ample time to prepare and present its argument. In the panel stage, if a dispute involves a developing country and a developed country, the former can request to have at least one panelist from a developing country. The panel is 1

2

A third party is any member with substantial interest in the dispute before a panel, who has notified the Dispute Settlement Board of its interest (Article 10.2 of DSU). A third party cannot appeal a panel report. Articles 3.12, 4.10, 8.10, 12.10, 12.11, 21.2, 21.7, 21.8, 24, and 27.2.

[╇ 29╇ ]

Africa and the World Trade Organization

also expected to report explicitly on the extent to which allowable provisions for differential and favorable treatment for developing countries have been utilized. In the compliance stage, if the complainant is a developing country, “the DSB shall take into account not only the trade coverage of measures complained of, but also their impact on the economy of developing country Member concerned” (Article 21.8 of DSU). Article 24 of the DSU calls for additional consideration for least-developed countries. For example, members are asked to exercise restraint in bringing cases that ask for compensation from or seek retaliation against least-developed countries. A provision in Article 22 of the DSU on suspension of concessions and other obligations (retaliation) is of special relevance to developing countries, although it is not limited to them. The complainant may seek to cross-retaliate, that is, to retaliate in sectors not covered by the violated agreement, if it determines that it is not practical or effective to retaliate in the same sector in which the defending country has been found in violation. It is important to point out that, unlike institutions such as the World Bank or the International Monetary Organization (IMF), the WTO does not have a precise classification of countries in terms of their development.3 Each member country declares its own development status. However, a country that categorizes itself as a “developing country” does not receive preferential treatment automatically. It can be challenged on its decision to take advantage of more favorable treatment for developing countries. As for least-developed countries, the WTO adopts the designation by the United Nations, which in 2007 had fifty countries in that classification, thirty-three of which were members of the WTO. Of these 3

According to the World Bank website, in 2008 the World Bank classified countries according to the 2007 gross national income per capita, calculated using the Atlas method (as opposed to the purchasing power parity method). The groups were: low income, $935 or less; lower middle income, $936–$3,705; upper middle income, $3,706–$11,455; and high income, $11,456 or more.

[╇ 30╇ ]

Dispute Settlement Understanding

table 2.1╇ Number of Cases Brought to the WTO: 1995–2005 Year

Case Numbers

Total

2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

DS325-DS335 DS305-DS324 DS277-DS304 DS243-DS276 DS216-DS242 DS186-DS215 DS155-DS185 DS111-DS154 DS65-DS110 DS23-DS64 DS1-DS22

11 20 28 34 27 30 31 44 46 42 22

Source:╇ http://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm.

least-developed WTO members, twenty-six were African countries (see Table 1.1 in Chapter 1).

Disputes A full comparison of the current utilization of the DSU with the utilization of the dispute settlement mechanism under GATT is beyond the scope of this study. Not only was the mechanism under GATT less unified and less rigorous, GATT had fewer members and covered fewer agreements. It is sufficient to note that in the nearly fifty-year tenure of GATT, only about 300 disputes were brought for consultation. Hudec (1990 and 1993) provides a synopsis of the GATT disputes for the 1948–1974 and 1948–1989 periods, respectively. According to the WTO website, in the first eleven years of the WTO (i.e., January 1, 1995 to December 31, 2005), there were 335 requests for consultation (see also WTO, 2005). The annual number of cases has ranged from a low of eleven in 2005 to a high of forty-six in 1997, with fluctuations as shown in Table 2.1. [╇ 31╇ ]

Africa and the World Trade Organization

Tables 2.2 through 2.5 include only “old” cases, that is, those filed before January 1, 2005.4 Table 2.2 shows the distribution of the 324 complaints into two broad categories of countries, those filed by high-income countries and those filed by developing countries.5 Ideally, developing countries would be disaggregated to separate least-developed countries from other developing countries. However, thus far, only one least-developed country – Bangladesh – has directly participated in the DSU. In February 2004, Bangladesh brought a complaint against India on anti-dumping measures on imports of batteries. In 2006, Bangladesh and India informed the DSB that they had reached a mutually agreeable solution. The first number in each cell of Table 2.2 is the absolute number of cases in the relevant category. In parentheses is the number of cases as a percentage (rounded) relative to the total number of cases. Seven disputes were brought by multiple complainants.6 Six of them are tallied in Table 2.2 under “high-income and developing countries”; the seventh was recorded with the “bilateral” cases because all complainants were developing countries.7 Quantifying DSU cases by country groups, whether based on economic development or geographical location, is not a precise exercise. As noted above, some disputes are filed by multiple complainants from different regions and different economic groups. In addition, some disputes are brought jointly by highincome countries and developing countries. There is no consensus about whether to treat a consultation requested by multiple complainants as one or more than one consultation. For example,

4

5

6 7

This is done to prevent characterizing relatively new cases as being inactive because a panel has not yet been established, or as lacking a mutually acceptable solution. High-income countries that have participated either as complainants or respondents are Australia, Belgium, Canada, Denmark, European Communities, France, Greece, Hong Kong, Ireland, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, South Korea, Sweden, Switzerland, United Kingdom, and the United States. DS234, DS217, DS158, DS58, DS35, DS27, and DS16. DS58, a case on imports of shrimp brought by India, Malaysia, and Pakistan against the United States.

[╇ 32╇ ]

Dispute Settlement Understanding

Table 2.2╇ Requests for Consultations: January 1, 1995–December€31, 2004 Complainants R e s p o n d e n t s

High-Income High-Income Developing and Developing Countries Countries Countries*

Total

High-Income Countries

142 (44%)

56 (17%)

5 (2%)

203 (63%)

Developing Countries

64 (20%)

56 (17%)

1 (–)

121 (37%)

total

206 (64%)

112 (35%)

6 (2%)

324 (100%)

*These are cases brought by multiple complainants that include at least one developing country and one developed country. Source:╇ WTO (2005).

Holmes€ et€ al. (2003) and Brewer and Young (1999) count the number of Â�complaints by the number of complainants, rather than by the number of cases. Zimmerman (2005) counts the number of disputes by the number of cases, an approach that is used in this study as well. Counting multilateral cases by the number of complainants would have increased the number of requests for consultation by twenty-eight, changing the total from 324 to 352.8 Moreover, although the United States generally brings its disputes against the “European Communities” (EC) as a group, it also has disputes against individual members of the EC.9 8

9

For a discussion of issues regarding quantification of cases, see Brewer and Young (1999). The WTO materials refer to the European Union (EU) as such or as the European Communities (EC). The EC is a member of the WTO, as is each of its twenty-seven member states.

[╇ 33╇ ]

Africa and the World Trade Organization

Of the 324 cases brought in the first ten years of the WTO, high-income countries were involved in 83 percent and developing countries were involved in 56 percent. The sum of 139 conveys that 39 percent of cases involved both high-income and developing countries. Almost 70 percent of the disputes brought by developed countries were against other developed countries, while disputes filed by developing countries were equally distributed between the two groups. The United States and the EC were involved in almost two-thirds of the cases brought in the first ten years of the WTO, or in about 80 percent of all disputes in which high-income countries were involved. Most of the high-income complaints against developing countries were directed at four relatively large economies – Argentina, Brazil, India, and Mexico. (China, which acceded to the WTO in 2001, will most likely join this short list in a few years.) This should not be surprising. Exports from the United States and EC to many individual developing countries are too small a percent of total exports for a violation by the importing country to reduce in any significant way benefits accruing to the United States or EC. In their study, Holmes et al. (2003) conclude that trade share is a robust predictor of a country’s participation in dispute settlement. It is likely that the single most important explanation for the higher share of disputes to which high-income countries are a party is the large trade shares with each other. However, there are other logical explanations. High-income countries may be constrained in filing disputes by their consideration of problems developing countries face, a self-discipline encouraged by the WTO. High-income countries might also be concerned about the potential for stirring up negative publicity if they brought cases against small developing countries. Moreover, high-income countries have other, and presumably more subtle, ways of leveraging a reduction in trade barriers in developing countries without resorting to the DSU. Another explanation could simply be that developing countries – especially the least-developed – receive many exceptions, making it hard to [╇ 34╇ ]

Dispute Settlement Understanding

find them in violation of agreements. Of course, these explanations do not necessarily explain why least-developed countries have not been active complainants; some possible explanations are provided later in this chapter. As described above, the DSU has a comprehensive process for handling disputes, including the privilege of either party to appeal a panel’s report. However, the hope is always for the involved parties to genuinely try to resolve their disputes at the consultation stage. While the threshold in determining the success rate of consultations is rather subjective, 56 percent of the 324 disputes did not move to the panel stage. Table 2.3 shows the number of cases in which there was no panel established or settlement reported. Although it is still possible for complainants in these cases to request the establishment of panels in the future, only “old” cases (covering the period from January 1, 1995 to December 31, 2004) were included in the data. Table 2.4 shows the number of cases in table 2.3╇ No Panel Established and No Notification of Settlement: January 1, 1995–December 31, 2004* Complainants R e s p o n d e n t s

High-Income High-Income Developing and Developing Countries Countries Countries Total High-Income Countries

33 (23%)

18 (32%)

2 (40%)

53 (26%)

Developing Countries

23 (36%)

31 (55%)

0 (0%)

54 (45%)

total

56 (27%)

49 (44%)

2 (33%)

107 (33%)

* The first number in each cell is the absolute number of relevant cases. The second number (in parentheses) is the percentage, the base being the corresponding number in Table 2.2. Source:╇ WTO (2005) and http://www.wto.org/english/tratop_e/dispu_e/dispu_ status_e.htm.

[╇ 35╇ ]

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table 2.4╇ Mutually Agreed-Upon Solutions or Inactive: January 1, 1995–December 31, 2004* Complainants R e s p o n d e n t s

High-Income High-Income Developing and Developing Countries Countries Countries Total High-Income Countries

34 (24%)

9 (16%)

0 (0%)

43 (21%)

Developing Countries

18 (28%)

14 (25%)

1 (100%)

33 (27%)

total

52 (25%)

23 (21%)

1 (17%)

76 (23%)

* The first number in each cell is the absolute number of relevant cases. The second number (in parentheses) is the percentage, the base being the corresponding number in Table 2.2. Source:╇ WTO (2005) and http://www.wto.org/english/tratop_e/dispu_e/dispu_ status_e.htm.

table 2.5╇ Sums of Numbers in Tables 2.3 and 2.4 in Corresponding Cells: January 1, 1995–December 31, 2004* Complainants R e s p o n d e n t s

HighIncome Developing Countries Countries

High-Income and Developing Countries

Total

High-Income Countries

67 (47%)

27 (48%)

2 (40%)

96 (47%)

Developing Countries

41 (64%)

45 (80%)

1 (100%)

87 (72%)

total

108 (52%)

72 (64%)

3 (50%)

183 (56%)

*The first number in each cell is the absolute number of relevant cases. The second number (in parentheses) is the percentage, the base being the corresponding number in Table 2.2.

Source:╇ WTO (2005) and http://www.wto.org/english/tratop_e/dispu_e/dispu_ status_e.htm.

[╇ 36╇ ]

Dispute Settlement Understanding

which the parties reached a mutual agreement at the consultation stage, including a few that have been declared inactive. Table 2.5 adds up the numbers appearing in Tables 2.3 and 2.4. The first number in each cell in Tables 2.3, 2.4, and 2.5 is the absolute number of relevant cases. The second number in each cell (in parentheses) is the percentage, the base being the corresponding number in Table 2.2. For example, in Table 2.4, in the top left cell, 34 is the number of cases brought by high-income countries against other high-income countries where mutual agreement was achieved; 24% (34 out of 142) is the percentage of such cases in which mutual agreement was achieved. There is a higher tendency for cases that involve developing countries to end up with no panel established and no settlement notification than cases that involve only high-income countries. The tendency for “inaction” in cases involving only developing countries is 55 percent, compared to 23 percent of cases involving only high-income countries, as shown in Table 2.3. Overall, of all cases brought against and brought by developing countries, 72€ percent and 64 percent, respectively, did not go beyond the consultation stage (Table 2.5). For high-income countries, the corresponding numbers for cases brought against and brought by high-income countries are 47 percent and 52 percent, respectively. Thus, cases involving developing countries have had a better chance of being dormant. This conclusion is not altered by various ways of counting cases with multiple complaints.

African Countries and the DSU The discussion of African countries is intertwined with that of least-developed countries. As of December 2007, there were 152 members of the WTO, including forty-two African countries. Among the African countries, twenty-six (62 percent of them) are designated as least-developed countries. The “dominance” of African countries is even larger in the LDC Group (thirty-three [╇ 37╇ ]

Africa and the World Trade Organization

countries) in the WTO. Almost 80 percent of the least-developed countries in the WTO are African countries. Of the 335 disputes brought for consultation during the first eleven years of the existence of the WTO (January 1995 to December 2005), only six involved African countries – Egypt and South Africa – as primary parties (WTO, 2005). In all of those cases, Egypt and South Africa were countries against which complaints were bought. In chronological order, these cases were: February 2005: A case brought by Pakistan against Egypt involving anti-dumping duties on matches (DS327).10 China, the EC, Japan, and the United States reserved their third party rights. The DSB established a panel in June 2005. Pakistan and Egypt reached a mutual understanding in March 2006. January 2004: A case brought by the United States against Egypt on measures affecting imports of textile and apparel (DS305). The United States and Egypt reached a mutual understanding in May 2005. April 2003: A case brought by Turkey against South Africa involving anti-dumping duties on imports of blankets (DS288). There has been no panel established and no settlement reported. November 2000: A case brought by Turkey against Egypt involving anti-dumping duties on imports of steel reinforcing bars (DS211). The dispute reached the panel stage and Egypt agreed to implement the recommendations and rulings of the DSB. September 2000: A case brought by Thailand against Egypt on the prohibition of imports of canned tuna (DS205). There has been no panel established and no settlement reported.

10

Dispute settlement (DS) cases are numbered in chronological order. One can always read the updates of a case by going to http://www.wto.org/english/tratop_e/dispu_e/ dispu_status_e.htm and clicking on the case number.

[╇ 38╇ ]

Dispute Settlement Understanding

April 1999: A case brought by India against South Africa involving anti-dumping duties on imports of ampicillin and amoxicillin (DS168). There has been no panel established and no settlement reported.

As of December 2006, no African country has been involved as a principal complainant in any case under the WTO.11 However, fifteen African countries have been involved as third parties in eight cases.12 The single most famous case among these is the banana trade dispute between the United States and the EU (DS27). The cotton subsidies dispute between Brazil and the United States (DS267) has also received ample publicity, as will be discussed below. 11

Under GATT, the WTO’s predecessor, one finds only 2 cases where an African country was the principal complainant. In 1966, only two years after winning its independence, Malawi dared the United States into consultations regarding U.S. subsidies on tobacco (Hudec, 1990). While the agricultural sector was not under the jurisdiction of GATT, Malawi used Article XXXVII of GATT to challenge the U.S. subsidies, which allegedly allowed the United States to seize a larger export market. Article XXXVII:3 (c) required developed countries to: have special regard to the interests of less-developed contracting parties when considering the application of other measures permitted under this Agreement to meet particular problems and explore all possibilities of constructive remedies before applying such measures where they would affect essential interests of those contracting parties.





12

â•… The U.S. responded that the subsidies were not new and that they were simply being used to maintain an already established market share. â•… In 1984, South Africa challenged Canada because of a tax amendment by the Province of Ontario which, discriminately, exempted Maple Leaf Gold coins from a 7 percent tax that had been in existence. No other gold coins were exempted from the tax (Mosoti, 2006). Canada argued that the measure in question was not taken by Canada, but by a provincial government, which was not a contracting party of GATT. South Africa countered that “the federal government of Canada had not taken the measures, reasonably at its disposal and within its power, to ensure observance of its GATT obligations” (GATT, 1985: paragraph 9). The panel found that the discriminatory tax structure applied by Ontario was inconsistent with Canada’s obligations to GATT. Although the panel’s report was not adopted, the recommendation was for Canada to compensate South Africa for the competitive advantage it lost until the measure by Ontario was withdrawn. (For a full panel report, see GATT, 1985.) The cases are DS267, DS265, DS246, DS141, DS135, DS132, DS58, and DS27 (WTO, 2005). The countries are Benin, Cameroon, Chad, Côte d’Ivoire (2 cases), Egypt, Ghana, Kenya, Madagascar, Malawi, Mauritius (4 cases), Nigeria, Senegal (2 cases), Swaziland, Tanzania, and Zimbabwe.

[╇ 39╇ ]

Africa and the World Trade Organization

First, the banana case, which some called the “banana war,” attracted significant attention because of its rather fascinating intricacies, including the EC’s complicated preferential system for imports of bananas from African, Caribbean, and Pacific (ACP) states; a conflict among developing countries that depend on banana exports; the corporate lobbying power involved in initiating the case13; and the United States’ participation as the lead (and aggressive) plaintiff, even though not directly affected by the EC banana policy.14 The following brief description captures the essence of the dispute. In 1995, the United States, joined by Guatemala, Honduras, and Mexico (and Ecuador in 1996 immediately following its accession to the WTO), filed complaints alleging that the EC’s banana regime for importation, sales, and distribution was inconsistent with WTO provisions (DS16 and DS27). Furthermore, by discriminating against U.S. firms that distributed bananas from Central and Latin America, the regime, allegedly, had an adverse effect on U.S. economic interests and, of course, on the economies of the co-complainants. As recipients of EC preferential treatment, four African countries – Cameroon, Ghana, Côte d’Ivoire, and Senegal€– reserved their rights in the case as third parties and were trying to preserve the preferential treatment to which they had grown accustomed, dating back to even before the first Lomé Convention, signed in 1975.15 The WTO panel found the EC’s banana trade regime to be inconsistent with its obligations. Subsequent appeals, stalling tactics by 13

14 15

It has been alleged that the launching of the investigation and the filing of the formal complaint by the U.S. Trade Representative was a direct result of the relentless lobbying and generous financial donations by Chiquita (originally, the United Fruit Company) to the major political parties – Democratic and Republican – in the United States (Herbert, 1996; Raspberry, 1999). For an excellent discussion of the EC–U.S. banana trade dispute, see Read (2001). The first Lomé Convention formalized all preferential treatments of imports from the ACP countries. However, special provisions, such as the Banana Protocol, to safeguard imports from ACP countries were included in the Treaty of Rome that established the European Economic Community in 1957.

[╇ 40╇ ]

Dispute Settlement Understanding

the EC, a unilateral (pre-emptive) declaration of punitive sanctions by the United States, and a complaint by the EC about the U.S. Â�pre-emptive announcement, just added to the drama of the case. Left outside the main sphere of action during the negotiations between the EC and the United States were the developing countries on either side of the case, and neither side was satisfied with the deal struck by the two trading powers. In 1999 the DSB permitted sanctions by Ecuador and the United States against the EC in this case. Mindful of its small size, Ecuador proposed cross-retaliation, that is, retaliation in a different sector. Specifically, Ecuador proposed denying intellectual property rights to European owners. As pointed out by Basso and Beas (2005: 19), this type of retaliation may: lead to “socially acceptable” (or desirable) consequences. Instead of transferring the burden of the litigation onto society, which would happen if tariffs were doubled for imports from the non-implementing party, the burden is transformed into a social benefit, for example through increasing access to medicines, cultural goods, and entertainment products or just information.

This was the first case in which cross-retaliation through a suspension of TRIPS was requested, much to the chagrin of the arbitration panelists. The response of the arbitrators was essentially a warning to Ecuador about the complicated legal nature of their proposed path. They pointed out the complexities in determining the nationalities of intellectual property right holders. In addition, they reminded Ecuador that it was obligated to pre-TRIPS, World Intellectual Property Organization (WIPO) conventions: the Paris Convention for the protection of industrial property, the Berne Convention for the protection of literary and artistic works, and the Rome Convention for the protection of performers, producers of phonographs, and broadcasting organizations (WTO, 2000: 29–35). While Ecuador was not able to retaliate, its creative proposal and, much more importantly, the United States’ punitive trade sanctions [╇ 41╇ ]

Africa and the World Trade Organization

imposed on EC products caused a change of heart by the EC. In 2001, the EC agreed to amend the banana regime to satisfy the United States and started to remove unlawful safeguards that favored imports of bananas from ACP countries. Nonetheless, the complainants contended that the EC’s reform of the banana regime fell short. In November 2006, Ecuador requested consultations with the EC, contending that the latter had not implemented the measures ordered by the Appellate Body (ICTSD, 2006 and 2006a). Later in February 2007, it requested the establishment of a panel and, shortly afterward, Cameroon, Colombia, Côte d’Ivoire, Dominica, the Dominican Republic, Ghana, Jamaica, Japan, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and the United States reserved their third-party rights. Subsequently, the United States requested the establishment of a panel, likewise claiming that the EC failed to bring its import regime of bananas into compliance with the WTO obligations. Belize, Brazil, Cameroon, Colombia, Côte d’Ivoire, the Dominican Republic, Ecuador, Jamaica, Japan, Mexico, Nicaragua, Panama, and Suriname reserved their thirdparty rights. It appears that the banana case will continue to be a source of disagreement between the United States and Central and Latin American countries on one side, and the EC and ACP countries on the other side. However, a successful establishment of Economic Partnership Agreements (EPAs) between the EC and ACP countries would reduce (if not remove) the validity of the banana case and similar cases against the EC.16 16

The outcome of the banana case seemed to confirm that the non-reciprocal preferences provided by the EC to ACP countries were not covered by the Enabling Clause adopted in 1979 under GATT. The Enabling Clause allows developed countries to discriminate against other developed countries in favor of developing countries as it is applied to the Generalized System of Preferences program. The controversy with the EC preferences for ACP countries is that they discriminate against other developing countries – those that are not ACP countries. The Cotonou Agreement signed in 2000 was not covered by the Enabling Clause because it retained non-reciprocity of EC trade preferences for ACP countries. However, in 2001, the Doha Ministerial Council gave a temporary waiver to the non-reciprocal preferences provided by the EC to ACP countries. The Cotonou Agreement was to evolve into Economic Partnership Agreements (EPAs), that

[╇ 42╇ ]

Dispute Settlement Understanding

The other dispute that has received considerable attention from the African Group in the WTO is the one brought by Brazil in 2002 against cotton subsidies in the United States (DS267).17 Brazil was joined by Argentina, Australia, Benin, Canada, Chad, China, Chinese Taipei, the EC, India, New Zealand, Pakistan, Paraguay, and Venezuela as third parties. Although the participation by Benin and Chad in the dispute was only peripheral, their dire condition as least-developed countries, highly dependent on cotton exports, lead to an outcry against cotton subsidies. This was amplified by the “cotton initiative” launched jointly by Benin, Burkina Faso, Chad, and Mali a few months before the WTO ministerial meeting in Cancun, Mexico (WTO, 2003d). (See the case on Benin and its cotton industry at the end of Chapter 4.) In 2004, a DSU panel ruled that certain U.S. subsidies to cotton farmers were inconsistent with the U.S. obligations under the Agreement on Agriculture. Though the United States appealed, the Appellate Body concurred with most of the panel’s findings. While this was a major victory for Brazil and African countries, the United States usually takes its time in making corrections in such politically sensitive sectors. Following Ecuador’s example,





17

is, reciprocal agreements between the EC and ACP countries, by 2008 (ICTSD, 2001). By January 1, 2008, twenty ACP countries, including eighteen African countries, had signed interim economic partnership agreements with the EC on trade in goods only; all fifteen Caribbean countries had signed full economic partnership agreements with the EC (Zwane, 2008), as shown below. Negotiations were to continue until all seventy-nine ACP countries had reached full economic partnership agreements with the EC. Interim agreements on trade in goods: Africa: Angola, Botswana, Burundi, Comoros, Côte d’Ivoire, Ghana, Kenya, Lesotho, Madagascar, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Swaziland, Tanzania, Uganda, and Zimbabwe. Pacific Region: Papua New Guinea and Fiji. Full economic partnership agreements: Caribbean Region: Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Saint Christopher and Nevis, Suriname, and Trinidad and Tobago. Brazil requested consultations with the United States in 2002 and consequently requested establishment of a panel in 2003.

[╇ 43╇ ]

Africa and the World Trade Organization

Brazil entertained the possibility of using cross-retaliation against U.S. services and intellectual property. However, a strong warning from the United States subdued Brazil’s enthusiasm. Brazil ended up reaching a bilateral deal with the United States (ICTSD, 2005), with the understanding that the United States would comply with the cotton ruling by the Appellate Body. Given the discussion below about preferential treatment to developing countries, it is important to understand the threat issued by the United States. No sooner had Brazil filed notice of its intention with the WTO this month [October 2005] than it got a heavy-handed admonition from B. Zoellick, the deputy secretary of state and former U.S. Trade Representative. He told reporters in Brasilia that it will take time for Congress to fix as complicated a problem as the cotton subsidies and that retaliation would only aggravate U.S. lawmakers. Then he brandished a threat to eliminate Brazil’s right to export goods such as plywood, auto parts and metals duty-free under a special program for developing countries. “Keep in mind, Brazil sells about $2.5 billion under a special-preference program to the United States,” Zoellick said according to a transcript of his remarks. “I think it is dangerous for people to go down these paths because one retaliates, and all of a sudden you might find out that something else happens” (Blustein, 2005).

As it happened, this stern warning did not restrain Brazil altogether. Alleging that the United States had not adopted the corrective measures called for by the Appellate Panel, in August 2006 Brazil requested a compliance panel to examine U.S. implementation of the recommendations and rulings (WTO, 2006). Contesting Brazil’s contention and claiming that they had complied with the rulings, the United States tried to block the establishment of a compliance panel. Nonetheless, a compliance panel was formed, which later determined that the United States failed to bring its cotton subsidy programs into compliance (ICTSD, 2007a). It is likely that contentions over the cotton case between Brazil and the United States will continue for an extended period and will push the DSU mechanism to its limits. [╇ 44╇ ]

Dispute Settlement Understanding

Some could argue that the increased use of the dispute settlement process weakens the political process for settling disputes. However, there is no reason to assume that the two processes are mutually exclusive. In fact, the two processes can reinforce each other to the extent that they serve as reasonable alternatives or complementary processes. The political (diplomatic) process of settling a dispute has a better chance of succeeding when parties know that the legal process can be pursued, should it be necessary. Strategically, countries will always pursue the process that has a higher probability of success, other things being equal. Note that less than 50 percent of all disputes go beyond the consultation stage. In addition, it is fair to assume that there are unrecorded disputes that are resolved amicably through the political process that do not even get to the consultation stage. Regarding the cotton case, African countries relied on the political process and the authority of the Ministerial Conference, while at the same time utilizing the dispute settlement body in their role as third parties. As it turned out, the strategy used by Benin, Burkina Faso, Chad, and Mali paid off. By relying on diplomacy and pursuing their case primarily through the WTO General Council, rather than through the DSU (except for Benin and Chad, as third parties), they managed to make a stronger case from a development point of view, rather than from a legal point of view. This path also made the United States and other developed countries less defensive and more willing to assist. In August 2004, the WTO General Council reached a decision in favor of development assistance for the cotton sector in Africa, particularly in West African countries (WTO, 2004). For example, Canada, Denmark, the EC, Germany, Japan, the Netherlands, the United States, and a number of multilateral agencies have responded with resources and creative ways to support the cotton industry in West Africa.18 18

These agencies include the African Development Bank (ADB), the Development Assistance Committee of the Organization for Economic Cooperation and Development

[╇ 45╇ ]

Africa and the World Trade Organization

Assistance has included rehabilitation of feeder roads, the building of irrigation infrastructure, the introduction of more productive cotton varieties, improving extension services, and improving cotton grading and classing. According to the U.S. Agency for International Development (USAID), “cotton classing is a major constraint to international marketing of cotton from [West Africa]. Estimates are that improved classing of cotton could potentially add as much as US$ 0.07 to US$ 0.10 per pound to the sale of cotton in world markets” (WTO, 2004a: 17). That would be approximately a 12 to 15 percent increase in price. A cursory glance at the African countries’ utilization of the DSU to this point might lead one to question the relevance of this chapter. The number of disputes brought by or against African countries might be seen as suggesting the agreement is irrelevant to African countries. Certainly neither the African Group (forty-two countries) nor the Least-Developed Country Group (thirty-three countries) in the WTO dismiss the agreement. They view it in the context of the implementation of all other agreements. However, they are not satisfied with what they see, contending that the dispute settlement system is biased against low-income developing countries – that is, against most African countries. They view the lack of active participation by African countries in disputes as being due to some inherent structural difficulties within the system. Operating under that premise, these two groups have been actively working in concert to craft proposals for amending the agreement to make it user-friendly for poor countries.

Major Problems with the DSU African countries see four major problems with the DSU: the system is complicated and too expensive; developing countries are (DAC-OECD), the Food and Agricultural Organization (FAO), the International Monetary Fund (IMF), the International Trade Center (ITC), the United Nations Industrial Development Organization (UNIDO), and the World Bank.

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not adequately represented; the system does not clearly embrace a development agenda; and the compensatory and enforcement dimensions of the system are biased against African countries (WTO 2002a, 2002c, 2003b). 1. The system is complicated and too expensive. The operative word here is “expensive.” The complicated nature of the system, as characterized by African countries, is taken to be intrinsic. The Â�complexity of the system makes it too expensive for African countries to utilize effectively. Thus, most prominent for African countries in their proposals is a plea for financial assistance and arrangements that would reduce their costs to use the system. Specifically, the African Group and the LDC Group make two recommendations. They recommend a permanent standing fund (with funds presumably raised mostly from high-income countries) to help them develop the capacity to use the dispute settlement system. In addition, they recommend due consideration for the possibility of consultations involving least-developed countries to be conducted in the capitals of least-developed countries. Recognizing developing countries’ handicap in utilizing the dispute settlement system, the WTO in 2001 established an Advisory Center on WTO Law (ACWL) to provide services to those countries, free of charge or at lower rates than those available in the market. For example, the hourly rate for dispute settlement proceedings for least-developed countries is barely 10 percent of the market price. Services include legal advice, training of government officials in WTO law, and support in WTO dispute settlement proceedings. (See the case study about the ACWL at the end of this chapter.) Mosoti (2006) explains that the dispute settlement mechanism is a public good in the sense that, through litigation, there is improved clarity of WTO rules. The establishment of the ACWL is an acknowledgment that it is in the interest of all WTO members that developing countries are empowered to use the dispute settlement system. As noted above, another recommendation is for the WTO to consider the possibility of holding consultations in the capitals of [╇ 47╇ ]

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least-developed countries for dispute cases in which least-developed countries are involved (WTO, 2002c). The idea is to avoid the high cost of hosting officials from African capitals in Geneva. For a dispute settlement case, various government officials would likely be needed to offer informational support to the WTO representative(s). Most African countries have only one or two officials in Geneva handling WTO matters. Although the suggestion to hold consultations in the capitals of least-developed countries seems reasonable, it is not at all clear that it would be ideal. Government officials sent to a particular venue for a particular purpose tend to be more prepared and more readily available for the task at hand than they would be in their home capitals. A least-developed country having consultations in its capital would also reduce its ability to exchange ideas on a case with other officials from least-developed countries in Geneva or experts at the ACWL or the United Nations Conference on Trade and Development (UNCTAD). One must also consider potential additional costs for other parties in the case. There would even be additional direct costs to the hosting leastdeveloped countries. WTO disputes require specific legal expertise that is typically not available in least-developed countries and, therefore, it would need to be imported. Foreign legal experts would charge extra for travel and hotel expenses and also for the inconvenience of being away from other cases and clients. These are additional costs that would most likely not be covered by the ACWL. Another caveat about having consultations in the capitals of least-developed countries is that government officials (to whom consultations are brought closer) may sabotage the initiative. Traveling to Geneva is a unique opportunity and financially quite rewarding for those from a least-developed country. In fact, traveling to Geneva plus the per diem may be just the incentive needed to boost the morale of these mostly overworked and underpaid officials and technocrats. [╇ 48╇ ]

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As an example, at the conclusion of the Uruguay Round of GATT, a representative of an African country invited the WTO secretariat to his country to give a workshop on the new agreements to officials at the ministry of trade and industry. However, some individuals at the ministry sabotaged the effort because they wanted instead to be brought to Geneva. Considering the cost difference, that would have meant training only two people instead of training many more at the ministry’s headquarters. The compromise was to have the workshop in a different city in the country, away from the capital, to give participants at least some modest per diem. When asked which dispute cases they might have brought against their trading partners had the cost of proceedings not been prohibitively high, some African officials point to the lack of technical capacity to even ascertain truly disputable cases. This problem does not have an instant solution. However, the ACWL is making an important contribution with its legal advice for least-developed countries and developing countries, as discussed in the case study at the end of this chapter. In addition, African countries should try to emulate the Â�public–private network model of the EC. In order to utilize the WTO dispute settlement system effectively, the EC developed a close working relationship with trade associations, corporations, and their lawyers (Shaffer, 2006). With information supplied by the private sector, the EC has been able to create a detailed database listing foreign trade barriers, which is continuously updated. African countries do not have anywhere near the resources needed to develop such a database, but the first step is simply nurturing a relationship that encourages collaboration between the government and the private sector, and having an attitude that promotes trade. Shaffer (2006) explains how before the establishment of the WTO, European trade policy was defensive in posture, focusing on defending domestic producers from foreign goods. However, in 1996, the EC announced a new “Market Access Strategy” aimed [╇ 49╇ ]

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at opening foreign markets to European goods. This led the EC to be more engaged in using the dispute settlement system as a complainant to advance its public and private interests (Shaffer, 2006). Again, it is not realistic to expect African countries to be able to do what the EC (and the United States and other developed countries) can. However, participation as a complainant in the WTO legal system by any country requires an outwardÂ�looking strategy. 2. Developing countries are not adequately represented. DiploÂ� matic and technical representation of developing countries in the WTO in general is very limited. Many developing countries, especially least-developed countries, usually have just one or two trade generalists in Geneva, whereas developed countries can afford specialists in specific areas of negotiations. According to the African Group and the LDC Group, there is also unbalanced and inadequate representation of developing countries in the dispute settlement system. The African Group has proposed a geographical balancing of representation in the dispute proceedings. It argues that such a balance will reflect “the various backgrounds and inherent concerns of the entire WTO membership” (WTO, 2002a: 6). Currently, for disputes between a developing country and a developed country, Article 8.10 of DSU entitles the developing country to at least one panelist from a developing country, “if the developing country so requests.” (Panels are usually composed of three panelists.) It is interesting that Article 8.10 is needed to ensure that developing countries are not completely left out; one would have assumed that the sheer number of developing countries in the WTO and the requirement that a panel should consist of members with “sufficiently diverse background and a wide spectrum of experience” (Article 8.2 of the DSU) would guarantee at least one representative from a developing country in each panel. Nonetheless, some developing countries do not find Article 8.10 of the DSU sufficient to achieve the geographical balance that they consider important. This is made clear by a proposal from the LDC [╇ 50╇ ]

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Group. The Group wants Article 8.10 of the DSU to be modified to entitle the developing country to two panelists from developing countries, the first one to be automatically granted, and the second if the developing country so requests. The Group also proposes even more tailored representation to safeguard their interests in disputes between a least-developed country and a developing country. When a dispute is between a least-developed country and a developing or developed country, the panel shall include at least one panelist from a least-developed country Member and if the least-developed country Member so requests, there shall be a second panelist from a least�developed country (WTO, 2002c: 2).

Perhaps experience has shown African countries that the economic level of a panelist’s own country influences his or her interpretation of rules and agreements. Whether this is an objective conclusion or not, there is a presumption of existing, or potential for the existence of, systematic bias against developing countries if they are not adequately represented in the panels. It is practically impossible to decipher panel reports and Appellate Body reviews in terms of potential biases against developing countries or any other group of countries. First and foremost, each dispute is unique. Second, in the end it is often not clear which side is the winner. This is evidenced, for example, when both the complainant and the defending country appeal to the Appellate Body following the panel’s report. In the complaint (DS285) brought by Antigua and Barbuda against U.S. restrictions on the cross-border supply of gambling and betting services, both sides appealed certain findings of the panel (WTO, 2005: 58–60). Third, even in a case with a relatively clear winner, typically the country would not have won on every claim that it brought or that was brought against it. One of a few exceptions is a case (DS243) where the panel reported that India failed in all its claims to establish inconsistency (violation) in U.S. rules of origin for textiles and apparel products (WTO, 2005: 80). Fourth, some complaints are brought [╇ 51╇ ]

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jointly by developing and developed countries. A good example is the infamous banana case (DS16 and DS27) that was brought jointly by Ecuador, Guatemala, Honduras, Mexico, and the United States against the EC (WTO, 2005: 148). A fifth reason for difficulty in identifying bias against developing countries is that, even in cases where the primary parties are a developing country on one side and a developed country on the other, third party countries may diversify the complainant’s side and/or respondent’s side. For example, in Peru’s case against the EC’s trade description of sardines (DS231), Canada, Chile, Colombia, Ecuador, Venezuela, and the United States reserved their rights as third parties (WTO, 2005: 85). In the case brought by the United States against Mexico’s anti-dumping measures on imports of high-fructose corn syrup (DS132), Jamaica and Mauritius reserved third-party rights (WTO, 2005: 132). In a case brought by India against conditions for the EC tariff preferences (DS246), Bolivia, Brazil, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Mauritius, Nicaragua, Pakistan, Panama, Paraguay, Peru, Sri Lanka, Venezuela, and the United States reserved third-party rights (WTO, 2005: 77). As of June 2005, panel and Appellate Body reviews had been completed for approximately thirty disputes in which the primary parties were a developing country on one side and a developed country on the other. The cases were distributed equally between developing and developed countries. That is, there were fifteen cases brought by developed countries against developing countries and fifteen brought by developing countries against developed countries. For almost all those cases, the complainant won a few claims. Taking the view that the complainant is considered a winner if vindicated in at least one of its complaints, there is no revealed bias against developing countries. A failure to deduce any bias does not necessarily mean it does not exist; moreover, people can be biased unintentionally. The bias can simply be a benign susceptibility to outside pressure or an [╇ 52╇ ]

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unconscious outcome of one’s upbringing and the world to which he or she was exposed. The proposals by the African Group and the LDC Group to ensure representation of developing countries have merit to the extent that: (a) there are gray areas in interpreting rules and agreements, even for trade and law experts; and (b) panelists’ experience with their own countries tend to influence their interpretation of the rules in those gray areas. Of course, the most important criterion must remain the integrity and professional qualification of the individual being considered for a panel. Mosoti (2006: 443) cautions that insisting on developing-country nationals might actually exclude some other WTO experts who are perhaps better suited to bring development concerns to the fore of the dispute settlement system, by virtue of their training, breadth of experience, and moral authority.

Moreover, the kind of experiential and geographical balancing of panels sought by African countries may never be satisfied. There will continue to be a propensity to narrowly reclassify regions or groups. For example, the LDC Group already finds being grouped with developing countries is too general, as their proposal suggests. Geographical balancing is even more problematic. In a dispute involving an African country, would it be sufficient that some panelists are from developing countries, or must they come from Africa? In a dispute involving a country in southern Africa, would it be sufficient that some panelists are from Africa, or must they come from southern Africa? 3. The system does not clearly embrace a development agenda. Proposals by the African Group and the LDC Group, whether regarding panel composition or procedures for appellate review, seem to be underscored by one fundamental assertion: the DSU mechanism is not sensitive to development interests of developing countries. The LDC Group claims that the mechanism is too legalistic, “often to the detriment of the evolution of a development-friendly jurisprudence” (WTO, 2002c: 2). Therefore, its proposal is geared at [╇ 53╇ ]

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aligning the DSU mechanism with development objectives. In the same spirit, the African Group wants the success of the DSU to be determined not only by the speed of proceedings and the number of disputes finalized, but it “should be equally determined on the basis of the extent to which findings and recommendations fully reflect and promote the development objectives” (WTO, 2002a: 7). “Development” is a term with a very high premium in political economy discussions. It is even more powerful when the development argument is made by African countries. Why, one might ask, would anyone or any system stand in the way of development for these impoverished countries? Moreover, unlike the first two decades of their independence when, according to Ake (1996: 9), the development argument was merely “a means for reproducing political hegemony,” a few African countries are, these days, genuinely undertaking development initiatives. Development–that is, sustainable increase in the standard of living of the population – must be the guiding principle for all economic policies. However, no matter how compelling the development argument might be, it has its limitations when it comes to the DSU system. The most appropriate stage for the development argument is at the negotiation of agreements. Once an agreement has been reached, a member country should not wave the development card as an excuse for failing or refusing to meet its obligations. It can be argued that most African countries as well as other developing countries signed the WTO agreements at the Â�conclusion of the Uruguay Round of GATT without a clear understanding of the long-term impact of these agreements. This was due in part to the complexity of the agreements and the limited technical and diplomatic representation by African countries, compounded by the fact that various agreements were negotiated simultaneously.19 19

Whereas developed countries had specialists for each area of negotiation, African countries were largely represented by generalists, and some African countries had no representatives at all. Competent as those few African representatives may have been, they were too few in number and their resources too limited to grasp all the intricacies of

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Nonetheless, correcting for any revealed biases against development must be done by renegotiating agreements and amending them accordingly. For example, TRIPS has been renegotiated and revised to address special challenges faced by the least-developed countries. While the DSU system can and will signal the need for such revisions and the need for technical assistance, it must enforce the rules, not set the rules, if the system is to work effectively. The development argument has another more general weakness. It subtly assumes that freer markets are averse to development. In their proposals, African countries and least-developed countries seem to project the idea that any rulings against them would reflect insensitivity to the development agenda. In aggregate, WTO agreements push countries toward more openness and toward allowing market forces to determine the allocation of goods and resources. African countries have often pointed to market imperfections as a reason for government controls and intervention, and no one would deny that market imperfections are prevalent in developing countries and that the government has an important role to play. However, it is important to note that claims of market imperfections are sometimes simply weak excuses to introduce and maintain rent-generating activities. Moreover, some of the policies that many African countries implemented in the name of development, in fact created market imperfections and weakened the economies of those countries. Consider, for example, the price and production controls in �various sectors (goods, services, finance, and agriculture) that were the norm in many African countries from the 1960s to the mid1980s as a means to deal with monopolistic tendencies. The price and production controls created shortages, as well as wasteful government monopolies whose remnants are still features of some African economies. Agricultural reforms that would have increased economics, history, law, science, strategy, and politics involved (Blackhurst and Lyakurwa, 2005; Ohiorhenuam, 2005; Mshomba, 2000).

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producer prices were resisted by those connected with the marketing boards (which, at the time, included the whole apparatus of the single ruling party in most countries) in the name of development. The result was a decline in production of agricultural exports and an increase in cross-border smuggling (May, 1985; Mshomba, 1993). Another example of an ineffective policy implemented in the name of development was reflected by the almost impenetrable trade barriers of the pre-structural adjustment era. African countries Â�justified those barriers by making the infant industry argument. Yet the public suffered the typical costs of protection – shortages and high prices – without gaining advantage in industrial production. It took, in part, external pressure for some countries to move toward development-friendly policies, such as reducing export taxes on subsistence farmers and reducing trade barriers that were a severe burden on consumers. Of course, many of the sheltered factories collapsed as soon as there was any glimpse of outside competition. Some viewed the collapse of such factories as evidence that the World Bank, the IMF, and, later, the WTO did not understand development and had a bias against developing countries. However, is a country really made worse off by allowing goods from other countries (including other poor African countries) to compete with domestic goods produced by a perpetually subsidized, and inefficiently run, government facility? An argument does not qualify as pro-development in nature just because it comes from a representative from a developing country. In addition, an argument is not anti-development just because there is a group in a developing country that would lose in the short run. The development argument in the WTO is typically framed as if disputes are and would only be between developing and developed countries.20 Even if that were the case, what would prevent

20

Note that the development argument is also a recurring excuse for failing to meet mutually agreed timetables for regional economic integration in Africa. For details, see Chapter 6 in Mshomba (2000).

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developed countries from also using the development argument in their favor? Countries vary tremendously in terms of their development, but because there is no limit to development, any country can potentially use the argument. If one is to automatically assume that the argument is invariably stronger when it comes from a developing country, what is to be made of a dispute between two developing countries or two least-developed countries? Developing countries in the Americas have gotten comfortable bringing cases against each other; six such cases were brought from 1995 to 1999 and twenty-three such cases were brought from 2000 to 2004 (WTO, 2005). Again, consider the banana case discussed earlier, with developing countries on either side of the case (though some just as third parties). Should the argument categorically favor the poorer country in the dispute? The point here is not that development goals should not matter, but that the development argument is weak. In fact, the argument poses potential danger to development when applied automatically to the dispute settlement system. 4. The compensatory and enforcement dimensions of the system are biased against African countries. This is the area in which African countries have their most compelling argument against the current DSU system. The final stage in the legal framework of the DSU is compensation and suspension of concessions. However, as will be discussed below, compensation is rare, and retaliation, especially by smaller countries, causes additional economic loss to the complainant and is ineffective. In addition, retaliation causes less of an impact on the respondent than the trade loss caused by the respondent. Thus, if an African country was a complainant and reached this stage in the dispute settlement process, the compensatory and enforcement provisions do not give the African country enough leverage to attain satisfaction or to make the violating country change its policies. For illustration, let A be an African country and B be the United States. Suppose country A submits a complaint that certain trade measures imposed by country B breached the latter’s obligation and [╇ 57╇ ]

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consequently caused adverse effects in country A. The case proceeds through consecutive stages and finally the Appellate Body upholds the panel’s conclusion that the measures at issue are inconsistent with country B’s obligations. Country B is then expected to inform the DSB of its intention to implement the recommendations of the DSB and to complete the implementation within fifteen months of the adoption of the Appellate Body report. Consider a situation where country B does not change its measures extensively or quickly enough to satisfy the complainant, country A. If the DSB sides with the complainant, country A will be entitled either to compensation from country B or the right to retaliate with its own trade barriers against country B. Compensation means country B must reduce mutually agreed upon trade barriers on some other products. However, note that compensation is voluntary and, thus, extremely rare. Moreover, compensation by country B would be bound by the most favored nation principle; that is, a member country must treat all other members equally with respect to trade policy. Therefore, if country B were to reduce trade barriers on some products from country A, it must do so on those products from other member countries as well, that is, on a most favored nation basis – another reason why compensation is rare. In addition, suppose the unlawful trade policy of country B was against country A’s most dominant export commodity, as cotton is for a number of West African countries. In that case, reducing trade barriers for other products, that is, minor exports from country A, would be meaningless for country A. Given that country A would not find this remedy satisfactory, country B would be even less inclined to use it as a way to provide compensation.21 If, as can be expected, compensation fails to resolve the dispute, the DSB can authorize country A to suspend concessions or other obligations to country B. That is, country A can retaliate 21

For more about why compensation is rarely preferred, see Anderson (2002).

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by placing trade barriers on goods from country B. The level of retaliation by country A is to be equivalent to the level of nullification and impairment (i.e., the trade loss) caused by country B. In principle, to the extent possible, retaliation should be in the same sector in which the defending country has been found in violation. However, African countries have hardly any intra-industry trade with their major trading partners to make retaliation a viable choice.22 In addition, for African countries, retaliation causes (a) additional economic loss (a net welfare loss) to the complainant and is ineffective; and (b) less of an impact on the respondent than the trade loss caused by the respondent.

Retaliation Causes Additional Economic Loss and is Ineffective Whatever the trade barrier might be that caused the dispute in the first place, it causes a net loss to the complainant due to a reduced volume of exports (from the complainant) and potentially reduced unit prices of the exports (due to the decreased demand for the products). This represents a deterioration in the terms of trade.23 The ripple effect of reduced export revenues for developing countries is usually far reaching because they need foreign currency to pay for imports and repay foreign loans. Asking these countries to retaliate by imposing their own trade barriers is literally asking them to dig themselves into a deeper hole of overall economic loss. Trade barriers distort domestic prices, which in turn distort domestic production and consumption. This causes a production 22

23

Intra-industry trade involves international trade in which a country both exports and imports products in the same industry. For example, when the United States both exports and imports cars, it is referred to as intra-industry trade. African countries mainly export primary products and import manufactured products. There is little intra-industry trade in Africa compared to developed countries. The price of a country’s export goods relative to the price of its import goods is known as the country’s terms of trade. Deterioration in the terms of trade is a fall in the price of exports relative to the price of imports.

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distortion loss and a consumption distortion loss, on top of redistributing income from millions of domestic consumers to a few domestic producers. When one considers the overall economic impact, trade barriers – inefficient policies – in one country do not justify trade barriers in another. Of course, the WTO is painfully aware of this reality and hopes that retaliation or the threat of retaliation, when necessary, will lead to the lowering of trade barriers by respondents. In other words, they expect retaliation to be rare and temporary. Furthermore, for retaliation to induce change, it must have some noticeable economic impact on the respondent’s economy. The economies of African countries are too small for their trade barriers to induce policy change in the United States or the EC, for example. According to the Direction of Trade Statistics (published by the IMF), from 2000 to 2004, the United States and the EC exports of goods to Africa were, respectively, about 1 percent and 2€percent of their total exports of goods. Individual African countries would inflict no real damage to the United States or the EU export potential, even if those African countries were to impose prohibitive tariffs across the board. In addition, given that they are price takers, African countries cannot improve their terms of trade by imposing trade barriers. On the flip side, if the United States, the EC, or any other large trading partner were to retaliate against a trade barrier placed by an African country, it would inflict considerable damage on the Â�latter, thus effectively forcing the African country to remove the barrier. About 20 and 45 percent of Africa’s exports are destined for the United States and the EC, respectively. Whether it concerns imports or exports, the United States and the EC are much more important to Africa, than Africa is to the United States or the EC. This phenomenon suggests that the retaliation remedy is asymmetrical and inherently unfair. Large economies must not be encouraged to take unfair advantage of their size. However, to the extent that the asymmetry [╇ 60╇ ]

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reduces the propensity for African countries to increase trade barriers for fear of retaliation, it can be a blessing in disguise for Africans, considering the benefits of trade. Of course, African countries would benefit even more from trade if their trading partners reduced trade barriers. If, indeed, retaliation by small African countries inflicts no real damage on large economies, the same can be said about trade barriers initiated by those African countries. Being a minor player would suggest not only that exerting effective pressure on major players is not possible, but also that major players may not be sufficiently harmed by these policies for them (the major players) to exert pressure for the removal of those policies. Even at the establishment of the WTO, the marginalization of small African countries was apparent. Their commitments were seen, to some extent, as a token. Least-developed countries, most of which are in Africa, were asked to “just give us a number” at which they wanted to bind their tariffs (Mshomba, 2000: 115). Therefore, trade barriers initiated by small African countries that violate WTO agreements would most likely go unchallenged in the dispute settlement mechanism by large economies. Ironically, the greater disadvantage for small African countries is not so much that their retaliation would be ineffective, but that their trade barriers may simply be ignored. Those trade barriers could potentially be maintained, hurting African economies for quite some time. In other words, there may not be enough outside pressure to reduce trade barriers, a reduction that would have an overall positive impact, especially to African consumers. This is not how African representatives approach the situation. Their concern is the apparent inherent inability of their countries to effectively retaliate against trade barriers imposed by large economies. African countries have, therefore, proposed collective retaliation (WTO, 2002a: 3). There should be a provision stating that: in the resort to the suspension of concessions, all WTO Members shall be authorised to collectively [╇ 61╇ ]

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suspend concessions to a developed Member that adopts measures in breach of WTO obligations against a developing Member, notwithstanding the requirement that suspension of concessions is to be based on the equivalent level of nullification and impairment of benefits.

It is difficult to believe that African countries are serious about this proposal, considering its potential for escalating trade barriers and the negative repercussions of such trade embargos. However, the proposal highlights the frustration felt by developing countries. Moreover, the concept of collectivity is not altogether foreign to the WTO, where collective bargaining in the form of coalitions, by region or economic classification, is common and sometimes effective.

Retaliation Causes Less of an Impact on the Respondent Than the Trade Loss Caused by the Respondent The WTO requires that retaliation by the complainant against the respondent’s exports be proportional to the trade loss on a oneto-one basis. The total value of prohibited imports by the complainant should be equivalent to the value of the complainant’s reduced exports to the respondent that resulted from the respondent’s breach of WTO obligations. Naturally, if the WTO is going to endorse retaliation, it must also set limits. Whatever the limits are, equivalence, on the basis of overall economic loss, cannot be achieved. This is especially the case for a small complainant whose retaliation can only add to its own economic loss without necessarily inducing a policy reversal by the respondent. Anderson (2002) suggests authorizing retaliation by the complainant that is some multiple of the damage caused by the respondent. Although this may indeed help large complainants influence compliance faster, it would simply multiply the economic loss experienced by small complainants if they were to be gullible enough to adopt the full extent of permissible retaliatory trade barriers. [╇ 62╇ ]

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Even if retaliation were effective, the term “equivalence” loses its meaning almost completely, considering that retaliation is usually authorized when the breach of the WTO obligations has already persisted for at least three years. Retaliation is not authorized with the view to correct for the reduction of exports that has already happened. It is supposed to match the concurrent damage and be halted as soon as the respondent complies, even though, in theory, “the DSB shall take into account not only the trade coverage of measures complained of, but also their impact on the economy of developing country Members concerned” (Article 21.8 of the DSU). The current DSU system also lacks the capacity to correct for long-term or irreversible damage to the complainant caused by the respondent’s breach of WTO obligations. This may include a permanent displacement of workers, the loss of skills, a reduced ability to attract direct investment, and shifts in demand to substitute goods (not necessarily produced by the complainant). For example, the price support program for sugar in the United States and the EC caused rapid growth in the demand for high-fructose corn syrup. In 1973 high-fructose corn syrup accounted for less than 2 percent of United States caloric sweetener consumption. By 1987, it accounted for 36 percent (Gardner, 1990: 47). This increase was partly due to the price floor for sugar in the United States. Even if the price support system were eliminated, the world demand for sugar would still not increase to the level it would have, if there had not been any sugar subsidies. The same can be said about the potential impact of the price support program for cotton in shifting demand from natural fibers to synthetic fibers in the United States. Note that while export subsidies by the United States lower the world price of cotton, they cause the domestic price of cotton in the United States to increase. To illustrate the potentially irreversible loss of skills that can occur through a respondent’s breach of WTO obligations, consider that the skills of crop husbandry in Africa are passed from one [╇ 63╇ ]

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generation to another through actual participation in farming. If a family is displaced from cotton production, it means that parents will not be able to pass their knowledge of growing and caring for cotton to their children. In turn, that means that even when cotton subsidies in OECD countries are finally removed and/or the price of cotton bounces back, there will be fewer people who know how to cultivate cotton. In 2002, Mexico presented a proposal asserting that, “the fundamental problem of the WTO dispute settlement system lies in the period of time during which a WTO-inconsistent measure can be in place without the slightest consequence”(WTO, 2002d: 1). Mexico proposed an acceleration of proceedings to obtain authorization for retaliation and retroactive application of the DSB rulings. Similar proposals were made by the African Group (WTO, 2002a) and the LDC Group (WTO, 2002c). To emphasize the serious injury caused to developing countries by illegal measures restricting their exports, the African Group proposed retroactive remedies even for measures that were withdrawn before the commencement or finalization of dispute proceedings. In addition, Mexico proposed authorizing the complaining party to take preventive measures against alleged WTO-inconsistent measures while dispute proceedings were pending. This authority was to be granted when the complainant considered that the respondent’s breach of obligation would cause or threatened to cause damage that would be difficult to repair. Aware that retaliation by small developing countries may simply add to more domestic injury, Mexico and African countries have made additional recommendations. Mexico proposed that if acceptable compensation could not be negotiated, the complainant should be given the option to trade the right to retaliate to another member (WTO, 2002d: 6). A preliminary study of Mexico’s proposal for using auction theory lends cautionary support to the efficacy of the proposal from an economic point of view (Bagwell et al., 2004). However, it warns that introducing auctioning countermeasures [╇ 64╇ ]

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into the DSU system may not necessarily be a good idea, considering potential political ramifications that might arise. Proposals by the African Group and the LDC Group call for compensation to be mandatory and not only in the form of further market access, but also monetary compensation.24 None of these proposals would have a direct impact on the export industry hurt by the WTO-inconsistent measures. One would imagine that the preventive measures proposed by Mexico could take the form of a complainant subsidizing the industry. However, developing countries have severe budget constraints. This is where the merit of monetary compensation lies, because those funds could be used to support the afflicted export sector. Ironically, the chance of receiving financial support for the affected export sector seems better when a charge is pursued through the WTO General Council rather than through the DSU. At least the approach taken by West African countries regarding their cotton sector, as discussed above, suggests this phenomenon. African countries are so vulnerable that threats of trade barriers alone, by a large trading partner such as the United States or the EU, can be sufficient to destroy their export industries. In 1994, a few months before the WTO came into effect, the United States threatened Kenya with import quotas on shirts and pillowcases. These threats alone dissuaded potential investors from investing in Kenya and caused producers of apparel in Kenya to look for new host countries even before the quotas were actually set or became effective. Likewise, the threats prompted U.S. importers to look for other sources. The current DSU system is not structured to address any damages caused by threats of trade barriers, even though they can be just as damaging as actual trade barriers. It would be very difficult to calculate a mutually acceptable estimate

24

Proposals by developing countries calling for monetary compensation and collective retaliation were also floated during the GATT period, dating as far back as 1965 (Hudec, 2002).

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of damages caused by threats, but it is worth a serious discussion in the WTO. Although other actions are not considered trade barriers in a technical sense, they can be applied with partiality. Consider travel warnings posted on the U.S. State Department’s website. It is not clear, for example, why Kenya was on the U.S. travel warning list in 2006, while Egypt has continued to escape the list even after bloody terrorist attacks at Egyptian tourist spots. Given the impact that these travel warnings have on trade, tourism, and foreign direct investment, the WTO should at least be apprised of the factors used to include a member country on the warning list.

Other considerations regarding the Low Level of African Participation in the DSU Other important considerations regarding the low level of participation by African countries in the dispute settlement process include (1) the role of individual firms; (2) the role of the media, NGOs, and domestic consumers; (3) non-WTO avenues for negotiating trade disputes; (4) the role of preferential treatment and financial assistance for African countries; and (5) the lack of credible disputes between African countries and developed countries.

The Role of Individual Firms The discussion above may lead one to conclude that disputable trade barriers by a small African country have no significant impact on large developed countries and, therefore, are left completely unchallenged. However, even casual observation of the real world would refute such a conclusion. Large developed countries are known both to have trade barriers on goods from small developing countries and to complain about trade barriers by seemingly small countries with minuscule market size. [╇ 66╇ ]

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To appreciate the forces behind trade barriers and, more importantly here, the forces behind submission of complaints to the DSB, it is imperative to consider the interests of individual firms. Although WTO membership consists of national governments, international trade is, in practice, not conducted by national governÂ� ments but rather by companies, companies that are concerned with their profit margins. While trade barriers by an African country may not have any noticeable impact on the overall U.S. economy, for example, it may have an impact on a U.S. company’s short-run profits. There is a firm or firms (typically multi-national corporations) behind every dispute. The driving force and the propensity to lobby for action are determined by an individual firm’s losses or anticipated losses. The question of whether the disputed trade barrier has an impact on the overall terms of trade is irrelevant to an exporting firm. In addition, even when the market of the country with disputable trade barriers is small relative to the exporting firm’s total sales, the firm might still lobby vigorously for their removal if that market is projected to grow. Moreover, if one small country’s trade barriers were neglected, who is to say that other small countries would not follow suit and impose similar trade barriers? Pursuing a country with disputable trade barriers is not only meant to force that country to open its market, but also to deter other countries from putting into place similar barriers. The Market Access Strategy developed by the EU in 1996 enables firms to notify the EU’s Trade Directorate General (TDG) directly of trade barriers, or to notify the TDG indirectly through respective trade associations or a member state official. The EU estimates that over 90 percent of the identified trade barriers are reported by individual firms or their trade associations (Shaffer, 2006). Section 301 of the U.S. Trade Act of 1974 enables individual firms to petition the U.S. Trade Representative (as Chiquita did in the banana case) for an investigation of alleged violations of the trade [╇ 67╇ ]

Africa and the World Trade Organization

rules of a foreign country. In addition, the Office of the U.S. Trade Representative can initiate an investigation itself. The fact that individual enterprises, whether in the United States or in a developing country, are behind initiations of dispute settlements, should not come as a surprise as they have first-hand information about disputed trade barriers. Moreover, trade rules and rule changes are not always publicly reported, and only those enterprises directly affected manage to identify and account for their occurrence. For this reason, when criticism is leveled against corporations for their influence in initiating cases, that criticism should not go unchallenged. If there is an alleged violation of an agreement, it should matter little who initiates the investigation. What is important is for the relevant panel and the Appellate Body to consider the facts regarding the alleged violations and interpret agreements objectively and with impartiality. If WTO agreements are reached with the full intention that they guide trade activities between nations, then those who report violations should not be criticized simply because they are motivated by self-interest. Of course, this is not to say that all WTO agreements take into account fully the salient development challenges that African and other developing countries face. The TRIPS Agreement is a good example of an agreement that fell short in appreciating the needs and capacity of African countries, as discussed in Chapter 3. This is where the question arises as to the degree of corporations’ self-interest, or rather their influence, and the fairness of some agreements on which disputes are based. Corporations can have significant influence in the framing of trade issues and the Â�outcome of negotiations, as well as in the initiation of dispute cases. For this reason, some critics even go so far as to argue that corporations are culpable of having “hijacked” the WTO. While this argument cannot simply be dismissed out of hand, for there is some truth to it, accepting it at face value would also be misguided. Like other participants in world trade, such as French farmers, cotton growers in the United States and Africa, or [╇ 68╇ ]

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consumers anywhere, corporations deserve a voice in international trade rules through their governments. A major controversy that has emerged regarding the participation of corporations and NGOs in dispute settlement procedures has to do with whether panels and the Appellate Body may accept and consider amicus curiae briefs (WTO, 2003: Chapter 9).25 By definition, amicus curiae briefs are submissions by entities that are neither a party nor a third party to the dispute. These briefs typically come from NGOs and industry associations with the intent to influence outcomes of disputes.26 Article 13 of the DSU gives panels “the right to seek information and technical advice from any individual or body which it deems appropriate.” In addition, the Appellate Body’s report on a case brought in 1996 by India, Malaysia, Pakistan, and Thailand concerning the U.S. import prohibition of certain shrimp and shrimp products, stated that Article 12 of the DSU allows panels to consider or reject unsolicited amicus curiae briefs (WTO, 1998: paragraphs 102–110). The controversy over unsolicited briefs only intensified when the United States filed a proposal on transparency, recommending opening dispute arguments and proceedings to the public and setting guidelines for handling amicus curiae submissions (WTO, 2002). Many countries were opposed to the U.S. proposal, particularly to the suggestion that unsolicited briefs by non-parties be allowed. The position of the African Group is that any unsolicited information should be submitted to the parties and not directly to the panels. The African Group and many other developing countries are concerned that allowing direct submissions by non-Â�parties (NGOs and business associations) to the panels or Appellate Body would weaken the inter-governmental nature of the WTO (WTO, 2002a, 2002b, 2003b). The African Group has a compelling Â�argument

25 26

Amicus curiae means “friend of the court.” For a study that examines the strategies used by NGOs to submit amicus curiae briefs, see Butler (2006).

[╇ 69╇ ]

Africa and the World Trade Organization

that must be seriously considered. Nonetheless, corporations and NGOs should be able to inform their governments without being automatically labeled as insensitive, greedy, or commandeers of the WTO. Individual national governments are in the WTO to represent their constituencies, including corporations, distributors, consumers, investors, farmers, and NGOs. There is also no reason to assume that if an agreement is good for corporations, it must be bad for the rest of the participants. Trade, as is well known, is not a zero-sum game. Part of the criticism regarding the power of corporations stems from those who are frustrated by some suspicious domestic lobbying tactics in many countries. Apparently Chiquita, for example, resorted to making large sums of “soft contributions” to political parties to push the U.S. Trade Representative to move on the banana case. However, it would be naïve to expect that the WTO could or should monitor and control an individual country’s domestic mechanisms for initiating an investigation. Even if it could be argued convincingly that corporations have and tend to use significant power to trample the interests of developing countries, it would seem that the DSU mechanism serves as a neutralizing force, rather than accomplice, in the face of such abusive power. The fact that a corporation can convince its government to initiate a case against a trading partner does not mean that the complainant will necessarily win the case. Without the DSU body and its legitimacy, corporations, if politically powerful, would simply push their governments into unmitigated protectionist actions, justified in the name of domestic interests and/or retaliation. Thanks in part to corporations that lobby their governments to file cases, active engagement of the DSU body in deliberating and ruling on cases has become a beacon that signals a need for technical assistance for developing countries and re-examination of WTO agreements. It has also made possible scrutiny of domestic trade laws that may be incompatible with the articles of the DSU, despite disagreement about the panel rulings of such cases. [╇ 70╇ ]

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In 1998, the EC filed a complaint (DS152) with respect to Sections 301–310 of the U.S. Trade Act of 1974, contending that particular trade law was inconsistent with the articles of the DSU because it enabled the United States to act unilaterally in determining and imposing punitive sanctions (WTO, 2005: 124). One year later, a DSU panel found in favor of the United States, concluding that the U.S. Trade Act of 1974 was not inconsistent with the articles of the DSU. Surprisingly, the panel ruling was not based on the legal interpretation of the U.S. trade law, but rather on the declaration by the U.S. administration that it will not actually use the law or act unilaterally. The panel noted that its findings were based in full or in part on US undertakings articulated in the Statement of Administrative Action approved by the US Congress at the time it implemented the Uruguay Round agreements and confirmed in the statements by the US to the panel (WTO, 2005: 124).

A weakness in this line of reasoning is apparent. It is similar to a ruling that it is not inconsistent with the law for a country to possess illegal deadly weapons, as long as there is a declaration by that country that it will not fire the weapons.27 While the panel ruling for this case (and undoubtedly others) leaves a lot to be desired, the dispute settlement process has, nevertheless, bound the U.S. government more firmly to its political declaration not to impose punitive sanctions unilaterally. In other words, one must not only look at what the DSU system has failed to achieve, but also at what it has been able to accomplish.

The Role of the Media, NGOs, and Domestic Consumers The presumably ineffective retaliation by a small developing country against a large developed country, even when the small country 27

For an extended critical evaluation of the panel ruling on the U.S. sanctions law and its inconsistency with other DSU panel decisions, see Raghavan (2000).

[╇ 71╇ ]

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has won a case, is one explanation given by African countries regarding why they have not been active participants in the DSU system. However, when a small country wins a case against a large country, the media, NGOs such as Oxfam and Third World Network, and domestic consumers in the large country can galvanize the public to pressure the government to retract its unlawful trade policies. The Brazil-U.S. cotton subsidies case certainly benefited from publicity garnered mainly by allegations that the U.S. cotton subsidies had detrimental effects on desperately poor African countries dependent on cotton exports. In fact, these allegations and the solidarity of the African Group with other developing countries on other contentious issues were part of the reason why the WTO Ministerial meeting in 2003 in Cancun, Mexico, did not succeed. Pressure on the United States to remove cotton subsidies gained even more momentum when Brazil won the case. Even the banana case benefited from the media and pressure by NGOs, although it did not need as much advocacy as the cotton case because it had large and influential countries on both sides. In the banana case, although Ecuador was authorized to impose sanctions against the EC, it refrained from retaliating. Ecuador was concerned that retaliation would only hurt its economy without necessarily pressing the EC into compliance.28 When Ecuador proposed cross-retaliation through intellectual property rights, it quickly learned how complicated and dangerous that could be. Notwithstanding this reality, winning the case gave Ecuador and other Latin American countries more ammunition with which to criticize the EC’s banana regime through the media. It is also important to emphasize that trade barriers, whether lawful or unlawful according to the WTO agreements, hurt domestic consumers and firms that use targeted products as inputs. For

28

A reviewer pointed out that, while a retaliating country may be harmed by its action in the short run, such an action could be justified to the extent that it lessens the probability of the trading partner increasing barriers in the future.

[╇ 72╇ ]

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example, agricultural export subsidies in the United States and the EC hurt food processors and producers of soft drinks in those countries, not to mention the taxpayers. Restrictions of imports of steel in the United States hurt the automobile and construction industries, and so forth. Thus, some firms in the country to which a complaint is directed are potential allies of the countries filing the complaint. These potential allies can be important in supplying information that may help the complainants win the case, while also providing for overall political pressure for removal of the trade barriers. Finally, it should be added that the contention that large countries will use their economic power to ignore WTO rulings is often an exaggeration. Large countries, like other countries, strive for good diplomatic relations with other WTO members. When large countries lose cases, even to developing countries, they do not automatically resort to bully-like defiance; rather, they resort to appeals and compliance, even if marginally and strategically. African countries should not be afraid of bringing cases against large countries if they have legitimate issues. A win by a small complainant against a large country would most likely produce a change in trade policy, even if the small complainant were not able to retaliate. Thus, although it seems compelling to argue that African countries have little reason to be active in the dispute settlement mechanism because the enforcement system is biased against them, the argument is actually not as strong as one might think.

Non-WTO Avenues for Addressing Trade Disputes There are other, more important explanations why African countries have not been active in the dispute settlement mechanism. Besides the fact that the system is complicated and expensive, as already discussed, an additional explanation is that there are Â�non-WTO avenues for addressing trade disputes. International trade disputes have existed for centuries and have been “resolved” in a variety of ways, ranging from diplomacy to wars. For example, in the [╇ 73╇ ]

Africa and the World Trade Organization

Â� mid-nineteenth century, Great Britain and other Western countries responded to a Chinese prohibition of opium by attacking Chinese coastal cities with gunboats (Beeching, 1975). China was not only forced to open its ports to British opium and later to opium from other Western countries, but also lost Hong Kong to Great Britain. Bilateral negotiations, especially between African countries and their trading partners, are still a dominant mode of operation. Even when African countries negotiate as a subgroup or as a whole continent with their trading partners, as they sometimes do through the New Partnership for Africa’s Development (NEPAD), they do not necessarily work directly through the WTO. Thus, while the DSU system provides a unified and predictable process for addressing disputes, it is not the only avenue available, nor is it necessarily the avenue of first choice for settling or pre-empting disputes. The “cotton initiative” launched by West African countries was brought to the WTO General Council and relied on the political process.

The Role of Preferential Treatment and Financial Assistance for African Countries Should an African country bring a case against the EC or the United States, it would do so from a very weak position, with almost no leverage whatsoever. African and other developing countries receive a variety of preferential treatment from developed countries. For example, they are the beneficiaries of the Generalized System of Preferences (GSP) program, implemented under the auspices of GATT and its successor, the WTO. Under the GSP program, developed countries are allowed and encouraged to provide preferential reduction or removal of trade barriers on products from developing countries.29 All African countries that are members of the WTO are eligible for U.S. and EU GSP benefits. 29

For an extensive discussion of the GSP program and its benefits (or lack thereof) to African countries, see Chapter 3 in Mshomba (2000).

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table 2.6╇ African Countries’ Key Preferential Access to the U.S. and EU Markets: January 31, 2006* Country (WTO Member) Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Congo, Dem. Rep. of Congo, Rep. of Côte d’Ivoire Djibouti Egypt Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria

ACP Beneficiary

AGOA** Eligible

X X X X X X X X X X X X X

X XX XX X X XX XX X X X X

X X X X X X X X X X X X

X X XX X X XX XX XX XX XX XX

X X X X

XX XX XX XX

EBA Eligible X X X X X X X X

X

X X X X X X X X

X X (continued)

[╇ 75╇ ]

Africa and the World Trade Organization

table 2.6╇ (continued) Country (WTO Member) Rwanda Senegal Sierra Leone South Africa Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe

ACP Beneficiary

AGOA** Eligible

X X X X X X X

XX XX XX XX XX XX

X X X

XX XX

EBA Eligible X X X

X X X X

* All listed countries are eligible for the U.S. and EU GSP programs. ** X, countries eligible for the general AGOA benefits; XX, countries eligible for the general AGOA benefits and special apparel benefits. Sources: WTO Members, http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm. ACP Members, http://europa.eu.int/comm/development/body/country/ country_en.cfm. AGOA eligible, http://www.agoa.gov/eligibility/country_eligibility.html. EBA eligible, http://europa.eu.int/comm/trade/issues/global/gsp/eba/ug.htm.

The United States and the EU (and other developed countries such as Canada and Japan) provide additional preferential treatment to Africa, as shown in Tables 2.6 and 2.7. The U.S. African Growth and Opportunity Act (AGOA) that took effect in May 2000 further increases U.S. openness to African products in a preferential way. The EU has special trade arrangements with Mediterranean countries, including four African countries – Algeria, Egypt, Morocco, and Tunisia. The Cotonou Agreement, signed in 2000, retained EU trade preferences for ACP countries at least until 2007. In 2001, the EU expanded its already relatively open policy toward the least-developed countries with what they [╇ 76╇ ]

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table 2.7╇ Tariffs under Preferential Schemes Preferential Agreement Canada ╅ GSP ╅ LDCs ╅ MFN European Union ╅ GSP ╅ ACP LDCs ╅ Non-ACP LDCs ╅ MFN Japan ╅ GSP ╅ LDCs ╅ MFN United States ╅ GSP ╅ AGOA LDCs ╅ Non-AGOA LDCs ╅ MFN

Average Tariff Rate (All HS-6 Products)

Average Tariff Rate (Tariff Peak Products)

4.3 4.4 8.3

28.2 22.8 30.5

3.6 0.8 (0) 0.9 4.3

19.8 ~0 ~0 27.8

2.3 1.7 4.3

22.7 19.0 27.8

2.3 0.0 1.8 5.0

16 n.a. (~ 0) 14.4 20.8

HS, harmonized system. This is an international method of classifying products used for customs documents and for the application of tariffs; HS, “digit” refers to the level of classification of products: the smaller the digit, the less differentiated the products. Some countries differentiate products beyond the 6-digit level. However, the HS-6 level is commonly used to compare tariff rates because it is the highest level of differentiation that all countries use; LDC, least-developed countries; “Tariff peak products,” products subject to tariff rates three times or more than the average tariff rate. Source:╇ Table 3 in Mattoo and Subramanian (2004) – Reprinted by permission.

call the Everything But Arms (EBA) initiative (Yu and Jensen, 2005). The EBA removes quotas and tariffs on all products, except for weapons and ammunitions, coming from forty-nine leastdeveloped countries, including thirty-four African countries. The sugar, banana, and rice markets are being liberalized gradually, [╇ 77╇ ]

Africa and the World Trade Organization

to appease farmers in the EC and prevent an economic shock in some of the ACP countries that have become dependent on historical preferential quotas. (The economic disruption would have occurred because some LDCs are not ACP countries and, thus, previously did not receive preferential treatment under the Cotonou Agreement.) The liberalization process for these three products is scheduled to be completed in 2009. Preferential arrangements are, in practice, non-binding commitments. The preference-giving country (region) usually sets the criteria for eligibility. These include safeguard measures that, essentially, caution preference-receiving countries not to be too successful in their export volumes or risk a suspension of preferences. Preferential treatment is, therefore, generally unpredictable and temporary in nature. A preference-giving country can suspend its program in whole or in part. It can add, remove, and/or Â�re-designate a product or country at its own discretion. This situation is not conducive to making African countries aggressive in the dispute settlement system. Even Brazil’s kneejerk reaction to retaliate against the United States after winning the cotton subsidies case was quickly calmed by the spell of preferential treatment. Much weaker than Brazil, African countries must try to strike a delicate political and cost-benefit balance in view of the benefit they receive from preferential access that can be suspended unilaterally. (Of course, although they benefit from preferential access, it can be detrimental in the long run, because it reduces incentives for diversification.) African countries are so dependent on preferential treatment (or at least the idea of it), that their concern is often the rapid decrease in the most favored nation (MFN) tariffs that erode the margin of preference.30 30

The idea of the most favored nation principle in the WTO is to have each member country treat all other members equally with respect to trade barriers. Exceptions are made for preferential treatment that benefit developing countries and also for free trade areas. The margin of preference is the difference between the MFN tariff and the GSP or AGOA or EBA tariff, for example.

[╇ 78╇ ]

Dispute Settlement Understanding

Lack of leverage due to preferential treatment is compounded by Africa’s perpetual requests (sometimes demands) and need for financial assistance from developed countries. Consider one of the more recent initiatives by African leaders in 2001, NEPAD. Before NEPAD, there was the Lagos Plan of Action for the Economic Development of Africa (1980), Africa’s Priority Program for Economic Recovery (1986), the African Alternative Framework to Structural Adjustment for Social-Economic Recovery and Transformation (1989), and the Abuja Treaty (1994). What may set NEPAD apart from previous continent-wide development initiatives is the way its language and economic orientation is explicitly in harmony with what is espoused by the World Bank, the IMF, and the WTO. With the NEPAD initiative, African leaders emphasize the role of the private sector, trade, regional cooperation, transparency, and even accountability (hopefully not only to donors but also, and more importantly, to their own people). However, similar to earlier initiatives, its implementation is remarkably reliant on foreign assistance.31 It is an understatement to say that Africa needs assistance. NEPAD’s assumed role to bring the continent into a new age of peace, security, stability, economic growth, and prosperity is dependent on donors (often referred to as partners). Implementing NEPAD’s ambitious programs requires $64 billion annually, most of which is requested from outside the continent (African Union: 2001: paragraph 144). Some critics of this seemingly unavoidable dependency, including President Yahya Jammeh of Gambia, have called NEPAD, figuratively, a kneepad, that is, something to kneel on while begging (Bafalikike, 2002).32 Metaphors aside, African 31

32

For an extensive evaluation of the chances of NEPAD to succeed in its proclaimed political and economic programs to promote stability and development, see Taylor (2005). “I am not criticising Nepad,” Jammeh said, “but the way it was conceived to be dependent on begging. Nobody will ever develop your country for you. What we want is an African Development Trust Fund where we put our resources and give loans to African countries to develop. But if you want to develop Africa by begging, you must train so that you have strong knees and that is why they call it Kneepad. If you rely on Nepad,

[╇ 79╇ ]

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countries appear to be perpetually knocking at the rich countries’ doors for assistance. This level of dependence surely must make African countries hesitant to bring cases against their donors (partners) through the DSU system. As for developed countries, they can use criteria for preferential access to their markets and conditions for financial assistance to propel African countries to “voluntarily” reduce barriers to trade and foreign investment, without necessarily resorting to the WTO dispute settlement mechanism. For example, the Cotonou Agreement between the EU and ACP countries signed in 2000 was reached with the understanding that the arrangement would evolve into Economic Partnership Agreements (EPAs) by the end of 2007. EPAs are premised as reciprocal obligations typical of a free trade agreement. Likewise, eligibility for AGOA requires that a country is: making continual progress toward establishing the following: marketbased economies; the rule of law and political pluralism; elimination of barriers to U.S. trade and investment; protection of intellectual property; efforts to combat corruption; policies to reduce poverty, increasing availability of health care and educational opportunities; protection of human rights and worker rights; and elimination of certain child labor practices. (http://www.agoa.gov/eligibility/country_eligibility.html)

Developed countries may also want to avoid formal complaints against African countries through the DSU system because such cases would likely attract a lot of negative publicity for the complainants (the bullies, as they would be referred to) from various groups. Moreover, developed countries have some more direct and less public ways of pressuring African countries to conform to their wishes. For example, the U.S. embassies in Africa usually distribute U.S. position papers to their host countries before WTO meetings, both as a courtesy and to forewarn them not to “rock the buy more pads for your knees because you will die on your knees and you will never get anything” (Bafalikike, 2002: 18).

[╇ 80╇ ]

Dispute Settlement Understanding

boat.” An African country’s head representative in the WTO negotiations tells how he once received a call from a U.S. trade official in Geneva alerting him that his position (the position of the African diplomat) on a particular issue was not compatible with that of his boss in the capital – the Minister of Trade. Apparently, the U.S. official had called the African Minister of Trade and charmed him with some promise of continued aid to his country and the two agreed they would straighten out the African official in Geneva, so he would be receptive to the U.S. position on the issue. The U.S. official was just being “kind” by letting his “colleague” in Geneva know.

Lack of Credible Disputes Between African Countries and Developed Countries As discussed previously, developed countries, which are African countries’ major trading partners, have reduced or completely removed trade barriers in favor of African products. Therefore, their markets are open to African products far beyond the minimum requirements of the WTO agreements. As a result, complaints by African countries against developed countries can be expected to be negligible in number. This is partly why the cotton case has received so much attention. Of course, this is not to suggest that developed countries have opened their markets as much as they should or could, especially considering non-tariff barriers on processed products and price distorting subsidies common in developed countries. However, from an obligatory point of view as determined by WTO agreements, African countries may have very little on which to bank complaints through the DSU system. Disputes against African countries can also be expected to be minimal given the extensions and exceptions allowed for developing and least-developed countries. At the time the WTO was established, the commitment to reduce trade barriers by developing [╇ 81╇ ]

Africa and the World Trade Organization

countries, especially by the least-developed countries, was in most cases merely symbolic. For example, these countries did not even bind some of their tariffs at all (as explained below) and where they did, they bound their tariffs above their applied tariffs. This practice made them fully compliant with most of the WTO commitments, from the very beginning of the implementation of the agreements.33 Table 2.8 shows binding coverage and bound and applied tariff rates for thirty-one African countries at the inception of the WTO. Binding coverage is the percentage of products subject to an agreed bound tariff rate. Bound tariff rates are tariff rate ceilings, that is, the maximum levels to which tariff rates can be raised. Applied tariff rates are the actual tariff rates on the imported goods. There is wide variation between countries in terms of the binding coverage, the average bound tariff rate, and the average applied tariff rate, so one must be extremely careful in making comparisons. Moreover, these are averages, so they do not show how protection is distributed among products. Nonetheless, the general observation can be made that in almost all cases, the bound tariff rates are considerably higher than the applied tariff rates, making compliance relatively easy. The high tariff ceilings were allowed in part to lure the least�developed countries into this new international trade body and also to allow poor countries a wide range of flexibility in determining their development path. Moreover, unlike developed countries that have become accustomed to utilizing anti-dumping laws to safeguard their markets, African countries lack the experience and courage to apply such laws.34 More importantly, African countries 33

34

Developed countries employed similar tactics regarding the Agreement on Agriculture (Ingco, 1996; Tangermann, 1996). According to GATT Article VI, dumping occurs “if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country.” Where domestic production is injured by dumped imports, a WTO member can apply anti-dumping duties to counteract dumping. However, the whole process of determining dumping and proving that dumping has caused injury to domestic

[╇ 82╇ ]

[╇ 83╇ ]

Benin Burkina Faso Burundi Cameroon Central African Republic Chad Congo, Dem. Rep. of

Country

36.20 79.92

96.24

39.40 39.20 21.80 13.30

62.50 13.50



100.00

28.35 41.86 68.34 79.87

(2)

17.60

18.40 17.00

14.70 12.80 ╇ 7.40 18.30

449

╇ 97 370

╇ 93 207 824 336

100.00

56.80 ╇ 0.20

╇ 30.10 29.90 ╇ 9.90 ╇ 0.10

(5)

95.94

37.87 75.42

11.39 13.15 26.83 50.00

(6)

Agriculture*

–

116 352

17.50 16.70 –

-19 4 – 189

14.10 12.60 – 17.30

(7) (8) â•…â•…â•…â•…â•…(6–7)/7* 100

╇ 98.21

╇ 30.00 ╇ 80.00

╇ 61.77 ╇ 98.12 ╇ 95.36 ╇ 80.00

(9)

–

24.90 21.00

15.50 14.80 – 23.69

(continued)

–

20 281

299 563 – 238

(10) (11) ╅╅╅╇(9–10)/10* 100

Average Average Average Applied Wedge** Applied Wedge** Bound Rate (Percent) Rate (Percent) Rate

Industry Average Binding Wedge** Coverage Bound (Percent) (Percent) Rate

(3) (4) â•…â•…â•…â•…â•…(2–3)/3* 100

Average Average Applied Bound Rate Rate



(1)

Binding Coverage (Percent)

Total Goods

table 2.8╇ Average and Bound Tariff Rates

[╇ 84╇ ]

Congo, Rep. of Côte d’Ivoire Djibouti Gambia Ghana Guinea GuineaBissau Kenya Lesotho Madagascar Malawi Mali Mauritania

Country

27.47 11.15 41.04 100.94 92.44 20.12

48.65 95.61 78.55 27.41 82.74 28.82 19.64

97.70 14.60 100.00 29.70 26.10 40.60 39.30

14.00 17.10 17.40 ╇ 6.01 13.57 11.24 10.60

18.60 12.60 30.92 13.60 14.70 ╇ 6.24

Average Average Applied Bound Rate Rate

Total Goods

16.00 33.10 100.00 13.60 14.30 38.90

Binding Coverage (Percent)

table 2.8╇ (continued)

3.10 22.90 100.00 0.50 1.20 29.50 97.30 1.60 100.00 18.90 14.90 31.60 30.00

╇ 48 −12 ╇ 33 642 529 222 248 459 351 356 510 156 85

50.00 54.14 60.02 25.33 43.32 14.15 10.48

15.21 8.62 40.04 56.36 34.72 10.00

Average Binding Wedge** Coverage Bound (Percent) (Percent) Rate

Industry

13.30 16.53 – 6.07 13.24 10.40 10.00

17.20 12.30 31.52 – 13.80 6.22 276 228 – 317 227 ╇ 36 ╇╇ 5

−12 −30 ╇ 27 – 152 ╇ 61

╇ 40.00 100.00 200.00 ╇ 30.00 121.27 ╇ 59.17 ╇ 37.67

╇ 30.00 ╇ 14.94 ╇ 47.60 102.42 ╇ 97.14 ╇ 39.70

Average Average Applied Wedge** Bound Rate (Percent) Rate

17.00 20.64 – ╇ 5.61 18.55 16.06 13.80

24.00 14.50 25.29 – 20.20 ╇ 6.45

135 384 – 435 554 268 173

╇ 25 â•… 3 ╇ 88 – 381 516

Average Applied Wedge** Rate (Percent)

Agriculture*

[╇ 85╇ ]

13.60 96.80 100.00 100.00 100.00 96.40 13.30 13.70 15.70 16.80 21.00

97.50 44.29 89.28 29.97 47.30 19.10 120.00 80.00 73.27 106.38 94.26

13.80 14.50 10.00 12.08 21.00 15.10 16.10 12.13 ╇ 8.79 13.49 18.78

606 205 792 148 125 26 645 560 734 689 402

0.40 96.20 100.00 100.00 100.00 96.00 0.10 0.60 2.90 4.00 8.90

6.60 38.13 91.54 29.99 48.38 15.84 120.00 80.00 50.39 42.69 10.97

12.50 14.40 9.20 11.57 – – 16.10 11.62 8.39 12.61 17.32 47 165 895 159 – – 645 588 501 239 37

100.00 ╇ 83.09 ╇ 74.38 ╇ 29.84 ╇ 40.18 ╇ 38.36 120.00 ╇ 80.00 77.69 123.32 143.47

18.10 15.10 13.20 14.69 – – 17.40 15.09 12.54 18.15 27.67

458 450 463 103 – – 590 430 520 579 419

* For agriculture, binding coverage is 100 percent for all WTO members. ** The wedge shows the percentage by which the average bound rate exceeds the average applied rate, i.e., the percentage by which the applied rate could be increased to reach the bound rate. Source: Table 2 in Mattoo and Subramanian (2004: 394–395). Reprinted by permission. Table 2 in Matto and Subramanian includes seventeen non-African countries and presents the differences between the bound rates and the applied rates in absolute terms.

Mozambique Niger Rwanda Senegal Sierra Leone Swaziland Tanzania Togo Uganda Zambia Zimbabwe

Africa and the World Trade Organization

were under pressure to sign off quickly on agreements that they did not fully understand and, therefore, they set high bound tariff rates as shields against the unknown. For all practical purposes, most African countries are well insulated from complaints through the DSU system. They have a lot of room to flex their protection muscles before their policies can be found to be inconsistent with the WTO rules. Some countries can increase their overall average tariff by a multiple of six over the applied rate and still be in compliance with the WTO agreements. Considering that these are simple averages and that not all products are subject to tariff ceilings, there is almost no limit on how high the tariff rates can be raised for selective products. The WTO tariff obligations for most African countries are ineffective as a way to reduce trade barriers. It should, therefore, come as no surprise that developed countries utilize various preferential arrangements and financial assistance eligibilities to compel African countries to pursue trade-liberating policies beyond those WTO obligations. Even when preferential treatment or financial assistance might not result in reduced trade barriers in African countries, they restrain African countries from increasing protection, something these countries might otherwise do and still be within their WTO obligations. In the world of political economy, sometimes success is measured in terms of the ability to contain a trading partner’s protection, rather than to advance its trade liberalization. Of course, it is this ability of developed countries to influence trade policies in African countries through conditionality that is often under attack. Criticism of conditionality is easy and fashionable because of the nature of some of the conditions, the Â�sovereignty production requires institutional frameworks and technical expertise lacking in most African countries. South Africa seems to be an exception with its long history of antidumping legislation and readiness to initiate anti-dumping cases. Considering the number of cases filed worldwide from 1995 to 2003, South Africa is among the top five users of the anti-dumping apparatus (Feinberg and Reynolds, 2006 and Brink, 2005).

[╇ 86╇ ]

Dispute Settlement Understanding

argument, and also the impression it gives of being more sensitive to the poor than those who are advocating freer markets. However, the poor are often victims of government monopolies. Some prerequisites for financial assistance, such as reduced implicit taxation of subsistence farmers, reduced government monopolies, and reduced trade barriers, may be more beneficial to the poor in African countries than the financial assistance itself.

Conclusion The dispute settlement system that evolved from Article XXIII of GATT and was formalized by the DSU gives the WTO a unique ability to enforce obligations. This capacity is shared by only a few other international institutions.35 While member countries may have concerns about the implications of the DSU on their sovereignty, they are also aware of the merits of predictable trade rules and disciplined trading partners. Moreover, one might also argue that the agreement simply enforces obligations to which contracting parties themselves agreed. Even with its imperfections and apparent asymmetrical effectiveness between countries, it promotes a sense of obligation and discipline and, thus, a more predictable trade environment. This is conducive to long-term trade commitments and investment. Although developed countries sometimes use their leverage with no regard for poor countries, the DSU system creates a buffer to curb such abusive tendencies because it operates in a multilateral setting. What limits African countries most from participation in WTO dispute settlement proceedings is the preferential treatment accorded to them. This leads to a lack of strong disputable cases and fosters a reticence to antagonize countries which provide the preferential treatment (and assistance). Beyond this, the low level of participation by

35

Others include the U.N. Security Council and the International Court of Law, which are more known by the public and arguably more important in international affairs.

[╇ 87╇ ]

Africa and the World Trade Organization

African countries in the dispute settlement mechanism can be attributed to the availability of more effective ways of working (or dealing) with developed countries and prohibitively high legal costs. In general, developed countries are open to products from African countries far more than they must be to fulfill their WTO obligations. In situations where developed countries implement policies that are inconsistent with the WTO rules, they can use their leverage as preference-giving nations to pre-empt cases or retaliation against them, as the United States demonstrated with Brazil in the cotton subsidies case. While this can be interpreted as abuse of power by developed countries, it is also a reminder that developing countries need to weigh the costs against the benefits of being preference recipients. Moreover, the margin of preference is eroding over time, and supply constraints often limit the ability of African countries to take advantage of preferential access to markets in developed countries.36 African countries should continue using the general WTO forum to voice their concerns and bring cases only when there is a clear violation, as was the situation with the cotton case. To the extent that African countries signed the WTO agreements at the conclusion of the Uruguay Round of GATT without fully understanding them, they should use the rulings of DSU cases as a guide to determine which agreements need to be revisited. Likewise, they should be clear about any new agreements being proposed. The DSU system gives the WTO an enforcement power that was not coherent under GATT and is still unavailable to most other international organizations. This phenomenon encourages some countries to try to integrate agreements reached by other international institutions into the WTO, by categorizing them as “trade related” (as if there is much that is not trade related), as was done

36

For an empirical study addressing whether it is worth it for African countries to ask for more trade preferences and whether they should reform their own trade policies, see Yu and Jensen (2005).

[╇ 88╇ ]

Dispute Settlement Understanding

with the TRIPS Agreement, to gain the legal authority to enforce those agreements. To help address the high cost of bringing cases to the DSU, the ACWL provides legal training and highly subsidized services in dispute settlement proceedings, as discussed in the case below. African countries should support the ACWL with membership and ideas and take full advantage of its services. The WTO should evaluate carefully the proposal for monetary compensation for the economic damage incurred by the complainant in cases where the panel finds the trade policies in question to be inconsistent with the WTO agreements. The WTO should also deliberate about damage caused by threats of trade barriers, as credible threats can be just as damaging as actual trade barriers. For African countries, even a threat of suspending preferential treatment by a developed country can be detrimental to attracting and retaining investment. Considering the many challenges that African countries face and their vulnerability, it is only appropriate that their situation be carefully taken into account. But African countries walk a fine line when they push for swifter and stricter enforcement measures in the face of WTO violations against them. The time will come when African countries no longer have the luxury of (or the complacency stemming from) long transitional periods or the luxury of being asked to do very little in terms of trade liberalization through the WTO. When that time comes, there is nothing to suggest that African countries or least-developed countries will be less likely to violate WTO obligations than developed countries. Anticipating that, the African Group and the LDC Group have proposed further special and preferential treatment for developing countries, because the stricter enforcement measures they have proposed, if agreed upon, would eventually be applied to them. One proposal by the LDC Group requests that least-developed countries not be subject to demands for compensation or retaliation. “In the alternative it could be recognized ‘a least-developed [╇ 89╇ ]

Africa and the World Trade Organization

country Member against whom a case has been determined shall be expected to withdraw the offending measure’â•›” (WTO, 2002c: 5). The proposal aims at preventing demands for compensation from least-developed countries or retaliating against them, even if those countries are found to be in violation of their obligations. It is likely that the proposals of African countries for effective retaliation and compensation would carry more weight if these countries showed more commitment to move toward trade liberalization, instead of simply asking for leniency. Moreover, benefits from trade come not only from access to foreign markets, but also from an efficient internal allocation of resources resulting from opening one’s own market. That is probably where the genius of the DSU system lies. A country that loses a case is compelled to meet its WTO obligations to freer trade, thereby allowing a better allocation of its resources. Thus, even the country that loses a case should end up “winning” in the long run.

Case: The Advisory Center on WTO Law 37 The need for an institution like the Advisory Center on WTO Law (ACWL) was clear from the very beginning of the negotiations for the Dispute Settlement Understanding (DSU). The ACWL was conceived of in conjunction with other suggestions to augment the technical capacity of least-developed and developing countries and to increase their participation in the WTO and their potential to benefit from WTO agreements. The ACWL was established in 2001 to provide legal advice, training, and assistance in dispute settlement proceedings to leastdeveloped countries and eligible developing countries. ACWL membership falls into three distinct categories of countries: 37

This case study is based on information provided to the author by officials from developing countries (mostly African countries) based in Geneva and connected to the WTO; reports by the Advisory Center on WTO Law (ACWL 2005, 2006); and other information at the ACWL website (www.acwl.ch).

[╇ 90╇ ]

Dispute Settlement Understanding

Â� least-developed countries, developing countries (other than leastdeveloped countries), and developed countries. All least-developed countries that are members of the WTO or have observer status in the WTO are automatically eligible for services of the ACWL. Although least-developed countries are invited to become ACWL members, there is no membership pre-requisite for them to have access to the services of the ACWL. Other developing countries must be members of the ACWL to be eligible for its services. As for developed country members, they are major contributors to the ACWL but do not receive its services. As of December 2006, none of the least-developed countries were paying members of the ACWL and only four African countries were members – Egypt, Kenya, Mauritius, and Tunisia, as shown in Table 2.9. In total, the ACWL had thirty-seven members: ten developed countries and twenty-seven developing countries (entitled to ACWL services), as shown in Table 2.9. Altogether, there were sixty-nine countries eligible for ACWL services, including forty-two least-developed countries. The ACWL is a shining example of how technical assistance can and should be delivered. It stands out not simply because of its uniqueness but, most importantly, because of its excellent management and adherence to its goals, as testified to by representatives of developing countries to the WTO with whom the author had the opportunity to speak. The budget for the ACWL is funded by contributions from developed country members with a minimum contribution of $1 million each. In addition, developing country members make contributions, the minimum amounts of which are determined by their world trade shares and income per capita. Developing countries are divided into three categories, A, B, and C. For membership, each developing country contributes a minimum of $300,000, $100,000, or $50,000, respectively, according to its category. Supplementing membership contributions are fees paid for legal services for leastdeveloped countries and eligible developing countries. [╇ 91╇ ]

Africa and the World Trade Organization

table 2.9╇ Membership in the ACWL: December 2006

Developed Countries Signatories to the Agreement Establishing the ACWL

Canada Denmark Finland Ireland Italy Netherlands Norway Sweden United Kingdom

ACWL Members By Accession

Switzerland

In the Process of Accession

Members Entitled to the Services of the ACWL (Category in Parentheses)* Bolivia (C) Colombia (B) Dominican Republic (C) Ecuador (C) Egypt (B) Guatemala (C) Honduras (C) Hong Kong, China (A) India (B) Kenya (C) Nicaragua (C) Pakistan (B) Panama (C) Paraguay (C) Peru (C) Philippines (B) Thailand (B) Tunisia (C) Uruguay (B) Venezuela (B) Chinese Taipei (A) El Salvador (C) Indonesia (B) Jordan (C) Mauritius (B) Oman (B) Turkey (B) Costa Rica (C) Georgia (C)

* Developing countries are divided into three categories – A, B, and C – according to their world trade shares and income per capita. Countries in category C are the poorest.

[╇ 92╇ ]

Dispute Settlement Understanding

In theory, the ACWL should not succeed. Consider these practical challenges. Why would a developed country contribute to an institution that subsidizes its potential opponents in dispute cases? How autonomous can an institution be if it is supposed to assist least-developed and developing countries, when major contributions are expected to come from developed countries? How would such an institution handle cases where both the complainant and the defendant are countries eligible for the institution’s services? The fact that the ACWL is not only surviving but meeting its obligations ardently reflects the ingenuity of the architects of the ACWL, the strong commitment of developed country members, the attentive guidance of the ACWL Management Board, and the outstanding leadership of the ACWL’s Executive Director, Frieder Roessler, and his Deputy, Leo Palma. When developed countries provide assistance to developing countries, they do so sometimes at the risk of making recipient countries their potential rivals in trade. Contributing to an institution that would subsidize your potential adversaries could be reckless, from a political point of view. Therefore, it should not be a surprise that many developed countries, including the United States, have not (yet) become members of the ACWL. It is not hard to imagine the condescending editorials some U.S. newspapers would run if the United States were a contributing member of the ACWL, and a country subsidized by the ACWL were to bring a dispute case against the United States. This is all the more reason why those developed countries that have contributed to ACWL are notable for their generosity and commitment to such an institution. The World Bank has also made contributions to the ACWL. The autonomy of the ACWL was of the utmost importance to the signatories of the agreement establishing it. An ACWL that was an extension of developed countries’ hegemony would have been worse than not having one at all. There is no evidence to indicate that the independence of the ACWL has been compromised by [╇ 93╇ ]

Africa and the World Trade Organization

any country. It also helps that members are only obliged to make a one-time contribution or installments over a 5-year period, rather than pay perennial dues for membership. An institution that relies on annual dues can be held hostage by its major contributors, a painful experience that even the United Nations has endured. Having completed its transitional period of 5 years, the ACWL’s main sources of funds are the revenue from its endowment fund and fees for its legal services. No amount of ingenuity would have allowed the ACWL to represent two eligible opposing parties on a single case simultaneously. However, both parties receive equally subsidized legal services. In such a situation of potential conflict, the ACWL represents whichever party seeks its services first. The ACWL maintains a roster of private law firms from which opposing parties can select legal counsel and receive the same rates and conditions as those of the ACWL. However, an official from a developing country member of the ACWL that has the experience of having received direct services from both the ACWL and one of the private firms maintains that the ACWL services were far superior. This is both an affirmation for the ACWL, as well as a challenge. Ironically, it is a blessing in disguise for the ACWL that not all developing countries have opted to become members. The more developing country members there are, the more likely eligible members would face each other in dispute cases and, in turn, the greater would be the need to engage the services of private firms. Of course, many other important services to members, apart from dispute settlement, are provided directly only by the ACWL. The ACWL (2005) has reported the progress it has made in its four years of operation; Table 2.10 shows highlights of this report. The African Group contends that the ACWL is not enough to address “all institutional and human capacity constraints of developing countries. [The ACWL’s] terms of reference are equivocal, and it does not cover all developing countries” (WTO, 2002a: 2). No single institution can be an answer to all capacity constraints [╇ 94╇ ]

[╇ 95╇ ]

For the period 2002–2006, 264 legal opinions to: 40 individual countries, including 12 African countries; the LDC Group as a whole; and the African Group as a whole. Directly represented 17countries in 26 disputes. (Thailand was represented in 6€disputes.) Of the 17countries, 2 were LDCs, Bangladesh and Chad (as a third party). Provided assistance through external legal counsel to 5 countries in 2 disputes.

Legal Advice

WTO dispute settlement

Summary

Service Free: While the ACWL Management Board may, at its discretion, fix the maximum number of hours, to date, it has not done so. Category A – CHF324 Category B – CHF243 Category C – CHF162 LDCs – CHF40

Members and LDCs

(continued)

Category A – CHF567 Category B – CHF486 Category C – CHF405

Category A – CHF567 Category B – CHF486 Category C – CHF405

Developing Countries Not Members of the ACWL

Charge (Hourly Rate), Swiss Francs (CHF)

table 2.10╇ Summary of Services Rendered by the ACWL: July 2001–December 2006

[╇ 96╇ ]

6- Month training courses

Training Activities

Seminars and Speaker Programs

Summary

Service

table 2.10╇ (continued)

A regular annual training course consisting of 6 months of weekly, 2-hour seminars. Four of these courses were held in the period 2002–2006. A total of 169 individuals have participated and 95 have received certificates based on their level of participation. Ad hoc seminars by experts in WTO law on topics of interest to LDCs and developing countries. Collaboration with other organizations such as the United Nations Conference

Members and LDCs

Free for Members: Nonmember developing countries invited when there is space available. They do not pay fees.

Free for Members: Nonmember developing countries invited when there is space available. They do not pay fees.

Developing Countries Not Members of the ACWL

Charge (Hourly Rate), Swiss Francs (CHF)

[╇ 97╇ ]

Various communications and activities to increase awareness of ACWL services to LDCs and developing countries, including those WTO Members and Observers that do not have missions in Geneva.

Sources: ACWL (2005 and 2006) and www.acwl.ch

Outreach

The Secondment Program

on Trade and Development (UNCTAD) to broaden the reach of ACWL services. A 9-month program to provide training for up to 3 government lawyers from LDCs and/or eligible developing countries. The trainees join the ACWL staff for the period of their training. The program started in 2005. In September 2005, 2 trainees joined: one from Lesotho, the other from Paraguay. In September 2006, 2 trainees joined: one from Malawi, the other from Egypt. The ACWL pays for salaries and all expenses. (The Secondment Program is supported by contributions from Canada, Denmark, Ireland, Norway, and Sweden.)

Africa and the World Trade Organization

in developing countries. To the extent that all developing countries are welcome to become members of the ACWL, the contention that the ACWL does not cover all developing countries does not carry much weight. Automatic services for all developing countries would be unsustainable. Any income-based, assistance system that is not sensitive to income differences among developing countries is bound to fail. First, it would violate its basic principle of providing assistance according to need. Second, it would reduce funds and, thus, assistance to least-developed countries. No matter what recommendations might be made regarding a standing fund or increasing the capacity of the ACWL, all developing countries (that are not least-developed countries) still must be willing to become members and, thus, contribute to the ACWL endowment. The concern by the African Group that the ACWL cannot address all capacity constraints of developing countries is not a criticism of the ACWL. If anything, it is an appeal for more institutions with equal integrity and expertise. A WTO diplomat from Latin America made the point to the author more explicitly by wishing that the ACWL model could be replicated by regional blocs and bilateral agreements, a recommendation also made by Mosoti (2006). The summary presented in Table 2.10 reveals some of the ACWL’s attributes. By providing legal opinions and representation in dispute cases, it addresses the immediate capacity deficiency problem suffered by least-developed countries and many developing countries, and by providing seminars and training, is building the future capacity of those countries. The ACWL is preparing least-developed and developing countries to be less dependent on ACWL services in the future. In fact, the long-term success of the ACWL is going to be measured, in part, by the rate at which countries graduate from different ACWL services as a result of the training they have received. Even in the few years since it was established, the ACWL has proven that it is a dynamic institution willing to, and looking for [╇ 98╇ ]

Dispute Settlement Understanding

new ways to, broaden its outreach to least-developed countries. Of course, the ACWL must be careful not to expand too fast or broaden its scope too much. Given its success, it is likely that some wellmeaning WTO members may want to utilize the ACWL to provide services not necessarily central to WTO law. To remain effective, the ACWL must refrain from such pressures or temptations.

[╇ 99╇ ]

3╇ Trade-Related Aspects of Intellectual Property Rights

A

mong the agreements that became effective at the establishment of the WTO in 1995 was the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The TRIPS Agreement sets a minimum uniform standard to protect intellectual property rights in eight areas: copyright and related rights; trademarks; geographical indications; industrial designs; patents; layout-designs (topographies) of integrated circuits; protection of undisclosed information; and control of anti-competitive practices in contractual licenses. Under the TRIPS Agreement, patents provide protection for twenty years “for any inventions, whether products or processes, in all fields of technology, provided they are new, involve an inventive step and are capable of industrial application” (Article 27:1). Certain provisions give governments some discretion to refuse to grant patents for public health reasons. The signing of the TRIPS Agreement was a celebrated achievement for developed countries, the main producers of technological knowledge. African and other developing countries, on the other hand, had all along been opposed to and wary of an agreement that might adversely affect their access to generic and cheaper medicines and hamper their adoption of new technology. But concerted pressure from developed countries (Abbott, 2002) and promises that national emergencies and the need to protect public health would override the TRIPS Agreement rules brought developing [╇ 100╇ ]

Trade-Related Aspects of Intellectual Property Rights

countries to the signing table, although reluctantly.1 Moreover, Article 7 of the TRIPS Agreement gave developing countries some assurance with its stipulation that: The protection and enforcement of intellectual property rights should contribute to the promotion and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.

This commitment was reiterated in 2001 at the launching of the Doha Round of negotiations, in the “Declaration on the TRIPS Agreement and Public Health,” in which WTO members stated: We recognize the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics. (paragraph 1) We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and, in particular, to promote access to medicines for all. (paragraph 4) We recognize that WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem and to report to the General Council before the end of 2002. (WTO, 2001: paragraph 6)

Given these stipulations and others of this kind in the TRIPS Agreement, were the fears of African countries well-founded? Has the agreement so far been implemented in a manner that demonstrates the spirit of Article 7 and the declarations of the Doha 1

Developing countries felt even added pressure as countries had to sign off on all agreements under the “single undertaking” approach that required them to accept all the results of the Uruguay Round if they wanted to be WTO members.

[╇ 101╇ ]

Africa and the World Trade Organization

Round? Are the policy options available to developing countries meaningful and sufficient for African countries to avoid adverse effects of the agreement on public health and development, and perhaps even benefit from the agreement? Is the extension of the transitional period for the least-developed countries to 2016 long enough? The discussion in this chapter sheds some light on these and other questions. The focus is on the minimum standard to protect intellectual property rights on patents.

A Theoretical Perspective on Patents A patent is ideally a legal intervention used to correct for market failures. It offers producers of technological knowledge the legal right to exclude potential free riders from producing goods that are embodiments of the knowledge they produce. Because of the external benefits associated with the production of new technology, the market, without intervention, does not produce a socially optimal amount of technology. In fact, some types of technology have the characteristics of public goods. The private sector on its own cannot produce an optimal amount of public goods. Public goods have the characteristics of non-rivalry and non-exclusion in consumption. A good is non-rival in consumption if consumption by one person does not “use up” anything, that is, it does not diminish the consumption possibilities of the good by others. For example, once the knowledge to produce aspirin is available, any number of pharmaceutical companies can use it without reducing the amount of the technical knowledge available. The non-exclusion characteristic of public goods refers to the situation where it is prohibitively costly for the market to confine consumption only to the paying customers. This would be the case if, say, a pharmaceutical company that developed the technology to produce aspirin could not confine the use of that technology to itself and its licensees. [╇ 102╇ ]

Trade-Related Aspects of Intellectual Property Rights

Where external benefits are prevalent and/or free riding is a problem, government intervention is arguably important. It is partly due to the external benefits of technology that public funds are used in research and development (R&D). A U.S. government study describes the rationale for public funds for R&D as follows: The rationale for government funding of basic scientific research is that if such research were left solely to the private sector, too little of it would be done, in the sense that the benefits to society from doing additional basic R&D is limited to its own expected returns. In the case of basic research and development, those returns can be particularly low compared with the social benefits, because it can be difficult for private companies to capture more than a small fraction of the total social value of their basic research. (U.S. Congressional Budget Office, 2006)

The same study reports that spending on R&D by the National Institutes of Health (NIH) – the primary recipient of government funding for health-related research – increased steadily from $5.8 billion in 1970 to $28.5 billion in 2004 (using 2005 dollars). On average, from 1994 to 2004, the annual spending by the NIH on R&D was about 40 percent of the aggregate spending by the Pharmaceutical Research and Manufacturers of America (PhRMA) members and the NIH on R&D.2 Patents are used to provide exclusion that is important, if not essential, if individuals, companies, and institutions are to invest in R&D programs. The patent system is used to motivate invention. This “invention motivation” theory of patents (Mazzoleni and Nelson, 1998) has been the most widely used argument by pharmaceutical companies in their relentless lobbying for the TRIPS Agreement. The logical conclusion of this argument is that in the absence of patents, there would be little or no innovation and that the more 2

Annual spending by PhRMA members on research and development increased gradually from $3.5 billion in 1970 to $38.5 billion in 2004 (using 2005 dollars).

[╇ 103╇ ]

Africa and the World Trade Organization

stringent the patent system is, the more innovations a country will experience. This was how developed countries justified the TRIPS Agreement to developing countries. They asserted that the TRIPS Agreement is good for poor countries – that it will promote innovations and development in those countries. When considering the benefits of patents, attention must also be given to the inefficiency that comes from the monopoly power created. Although patents give a pharmaceutical company an incentive to invest in R&D, they also limit the diffusion of knowledge. Patents create an inefficient use of knowledge because patents exclude some potential users of that knowledge. Understandably, developing countries were concerned that the TRIPS Agreement would increase the cost of acquiring technology from developed countries and increase the prices of consumer products, including essential drugs (Khor, 2002).

Technology and Trade While the TRIPS Agreement may be an incentive for innovation, it has the potential to undermine trade dynamics. Trade patterns are indeed dynamic, and technology plays an important role in determining those dynamics, as explained below. Basic trade theory informs us that a country’s comparative advantage (or disadvantage) in relation to its trading partners partly determines a country’s trading pattern. Comparative advantage refers to lower relative opportunity cost. Producers in one country have a comparative advantage in producing a good or service if their opportunity cost in its production is lower than that of producers in another country. Comparative advantage is determined by various factors, including differences in factor endowments and differences in technology, as demonstrated by the Heckscher– Ohlin model and the Ricardian mosdel, respectively.3 3

For an explanation of these models, refer to any international economics textbook.

[╇ 104╇ ]

Trade-Related Aspects of Intellectual Property Rights

For example, African countries have a comparative advantage in some minerals with which they have been endowed and some crops such as cocoa, coffee, cotton, and sugar because they have been endowed with the appropriate climate and soil for the production of these commodities. African countries have a comparative disadvantage in processed and manufactured goods compared to developed countries, because of developed countries’ advanced technology. It is important to add, however, that some comparative advantage revealed by trading patterns is a result of trade policies, such as production and export subsidies. Trading patterns are dynamic because comparative advantage is dynamic. Relative abundances of endowments of a country such as minerals change over time, either due to depletion or the discovery of similar minerals in that country or in other countries. However, the most important source of changes in comparative advantage and trade patterns is the change in technology. The technological gap and the product cycle models outlined, respectively, by Posner (1961) and Vernon (1966) capture the dynamics of comparative advantage emanating from the development and assimilation of technology. The technological gap model explains comparative advantage based on the development of new products or new processes of production. The role of technology in determining and shifting comparative advantage is sketched and empirically estimated in a collection of articles in Fagerberg, et al. (1997). While the TRIPS Agreement may be an incentive for innovation, it may also shield comparative advantage by giving the innovating firms temporary monopoly power. In other words, the TRIPS Agreement has the potential to undermine trade dynamics. The product cycle model reveals the interconnectedness between trade and technology. It outlines technological assimilation and the standardization of the production process facilitated by trade. It also reveals the potential for trade to be an incentive for developing new products and new production processes. This is particularly [╇ 105╇ ]

Africa and the World Trade Organization

the case for countries whose domestic markets are too small to allow producers to take advantage of economies of scale. The new products and production processes are disseminated through trade and/or foreign direct investment. Over time the production process becomes standardized, requiring relatively less skilled labor than when the product was first introduced. According to the product cycle model, comparative advantage for new products moves gradually from developed countries to developing countries, eventually leading to a change in the patterns of production and trade (Flam and Helpman, 1987). This has been the case with the production of textiles, radios, TV sets, and cars. By strengthening intellectual property rights between countries with significant economic differences, the TRIPS Agreement may reduce the potential for African countries to acquire new technology and penetrate the world market. Glass (1997) developed a general equilibrium model that supports this view. Among the many factors that contributed to the successful industrialization of Asian countries such as Singapore and South Korea was their ability to use technology from developed countries. African countries need even more access to technology because, unlike the Asian countries with which they are often compared and contrasted, they are undertaking export-led policies disadvantaged by a very narrow range of export products (primarily, unprocessed commodities).

Developed and Developing Countries’ Perspectives on Patents Countries try to strike a balance between appropriation (exclusive use) and diffusion (spreading) of technology by considering various domestic development factors and goals. Due to the wide economic gap between developed and developing countries, there is an obvious conflict of interest between these groups of countries. Developed countries, the main producers of technological knowledge, tilt the pendulum more to the appropriation side. [╇ 106╇ ]

Trade-Related Aspects of Intellectual Property Rights

Historically, in their early stages of development, countries invariably give highest priority to diffusion. Appropriation becomes “affordable” only gradually as a country develops and is able to compete with the rest of the world. For example, even the United States, a staunch advocate for and enforcer of intellectual property rights, refused copyright protection until 1891, with the argument that it needed to educate its people (Subramanian, 2003; Piccioto, 2002: 226; Pretorius, 2002: 184). A lot of criticism has been leveled against India, Brazil, Argentina, Mexico, and other developing countries for passing laws in the 1970s that weakened their patent laws in the pharmaceutical area. However, the action by these countries was not without precedent. For example, in 1919, realizing Germany’s competitiveness in the chemical industry, the United Kingdom reformed its patent laws to remove patents of chemical compounds (Drahos, 2002: 165). Pharmaceutical products – a major source of contention between developed and developing countries with respect to the TRIPS Agreement – became patentable as recently as 1967 in France and West Germany, 1976 in Japan, 1977 in Switzerland, 1979 in Italy, and 1992 in Spain. These countries waited until they felt they could compete with their trading partners in producing patentable pharmaceutical products before they granted patent protection to those products. Thus, while there is a theoretical and practical basis for patents, the spread of knowledge has always been of paramount importance when it comes to arrangements with countries that have superior technology. The TRIPS Agreement has changed that and has placed the least-developed countries and the richest countries in the world under the same general umbrella. Correa (2000) provides some reasons why global international property rights were given such a high priority by developed countries in the Uruguay Round of GATT. Among the reasons was the growing importance of technology in determining comparative advantage, the increasing non-exclusivity of new technologies, and [╇ 107╇ ]

Africa and the World Trade Organization

the growing power of multinational corporations that want direct access to developing countries’ markets without having to share their technology with local firms. Pharmaceutical companies have, in particular, been the major force behind the TRIPS Agreement in the area of patents. Developed countries also used the inclusion of the agricultural and textile industries into the WTO as bargaining chips for the TRIPS Agreement. African countries are not categorically averse to intellectual property rights; all are members of the World Intellectual Property Organization (WIPO). Analogous to the focused mandate of the International Labor Organization (ILO) on labor issues and the World Health Organization (WHO) on health issues, the WIPO deals only with intellectual property rights issues. This is a good forum for African countries for various reasons. Given that the WIPO deals exclusively with intellectual property rights, representatives to the meetings, wherever they are from, usually possess a relevant technical background. In the WTO, in contrast, there are usually many varied and complex agreements being negotiated simultaneously. Whereas developed countries can afford specialists for each area of negotiation, African countries typically have very limited technical and diplomatic representation. As Pacón (1996: 353) noted: The modest negotiating strength of the developing countries was revealed in the TRIPS negotiations of the Uruguay Round. Although a North-South conflict was to be expected, the success of the negotiations depended more on the settlement of a number of differences among industrialized countries themselves. This was compounded by the fact that in many cases the experts from the developing countries were hardly ever involved.

In the WIPO, it is also easier for developing countries to coordinate their arguments and strategies and work as a coalition. The fact that the WTO deals with such a wide range of issues makes it much harder for a coalition of developing countries on any single [╇ 108╇ ]

Trade-Related Aspects of Intellectual Property Rights

issue to be sustained, with the case of cotton subsidies (discussed in Chapter€4) providing a rare exception. The varied interests and goals of developing countries on various agreements make these countries natural prey to the “divide and rule” phenomenon. Moreover, in the WTO, more so than in the WIPO, developed countries can leverage and coerce developing countries into accepting unfavorable agreements by promising technical assistance and other relatively favorable agreements (such as agriculture and textile and apparel) or by threatening to use trade barriers (Piccioto, 2002: 226).4 Another important reason why developed countries wanted intellectual property rights to be incorporated into the WTO is enforcement. The TRIPS Agreement brought into the WTO many of the existing rules and agreements reached under three WIPO conventions: the Paris Convention for the protection of industrial property, the Berne Convention for the protection of literary and artistic works, and the Rome Convention for the protection of performers, producers of phonographs, and broadcasting organizations. Under the WIPO, member countries can choose conventions to which to subscribe, as shown in Table 3.1. Membership in the WTO means subscribing to all of its agreements with very few exceptions, like the Agreement on Government Procurement, discussed in Chapter 5. More importantly, WTO agreements are enforceable by the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes, discussed in Chapter 2. (This understanding is referred to in the TRIPS Agreement in Article 64.) It is worth noting that under the WIPO, disputes can be brought to the International Court of Justice (ICJ). However, the authority of the ICJ does not apply to WIPO members that do not recognize the court’s jurisdiction.5

4

5

For a good discussion on U.S. coercion in negotiating the TRIPS Agreement, see Drahos (2002). For more information about enforcement of the TRIPS Agreement, see Lee and Lewinski (1996) and Dreier (1996).

[╇ 109╇ ]

Africa and the World Trade Organization

Table 3.1╇ Members of the WTO and Signatories to the Paris, Berne, and Rome Conventions* Country Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Congo, Dem. Rep. of Congo, Rep. of Côte d’Ivoire Djibouti Egypt Equatorial Guinea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Madagascar

WTO o x x x x x x x

Paris Convention

Berne Convention

x

x

x x x x x

x x x

x

x x

x x

x x

x x

x x x x x o o x x x x x x x

x x x x x x

x x x x x x

x x x x x x x x x x

x x x x x x x x x x

o x

Rome Convention

x

(continued)

[╇ 110╇ ]

Trade-Related Aspects of Intellectual Property Rights

Table 3.1╇ (continued) Country Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda São Tomé and Principe Senegal Seychelles Sierra Leone South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe

WTO

Paris Convention

Berne Convention

x x x x x x x x x x

x x x x x x

x x x x x

x x x

o x o x x o x x x x x x x

x x x x x x x x x x x x x

x x x x

Rome Convention

x

x

x x x x x x x x

*An “x” identifies member governments and an “o” identifies observer governments. Sources:╇ WTO and World Intellectual Property Organization (WIPO) websites http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm, http://www.wipo.int/treaties/documents/english/word/d-paris.doc, http://www.wipo.int/treaties/documents/english/word/e-berne.doc, http://www.wipo.int/treaties/documents/english/word/k-rome.doc.

[╇ 111╇ ]

Africa and the World Trade Organization

Health Indicators in Africa A glance at health indicators can help explain the apprehension of African countries about the TRIPS Agreement. The dire economic states in which most African countries operate is reflected vividly by the health indicators of those countries. For example, life expectancy at birth has fallen or remained constant since the 1990s in many Sub-Saharan African countries, as shown in Table 3.2. On average, life expectancy at birth in Sub-Saharan Africa fell by 6 percent between 1990 and 2004. Likewise, the number of physicians available to populations in Sub-Saharan Africa is very small, as shown in Table 3.2. From these statistics alone, one can appreciate that these countries need all the support they can get to address public health challenges, and not additional obstacles introduced by WTO agreements. The TRIPS Agreement was negotiated in the early 1990s when the HIV/AIDS pandemic was gaining ground in Sub-Saharan Africa. At the same time, although HIV antiretroviral drugs were proving to be effective, they were far too expensive for the vast majority of HIV patients in developing countries. Partly due to the confluence of these factors, the debate over and the implications of the TRIPS Agreement are often presented in the context of the HIV/AIDS epidemic. Although Sub-Saharan Africa has 10 percent of the world population, it is home to over 60 percent of the people in the world living with HIV/AIDS. Estimates by the Joint United Nations Program on HIV/AIDS (UNAIDS) indicate that the adult HIV prevalence rate in some southern African countries is over 20 percent, as shown in Table 3.3.6 Not surprisingly, there is a high 6

Co-sponsors of UNAIDS include the Office of the United Nations High Commissioner for Refugees, the United Nations Children’s Fund, the United Nations World Food Program, the United Nations Development Program, the United Nations Population Fund, the United Nations Office on Drugs and Crime, the International Labor Organization, the United Nations Educational, Scientific and Cultural Organization, the World Health Organization, and the World Bank.

[╇ 112╇ ]

Trade-Related Aspects of Intellectual Property Rights

Table 3.2╇ Life Expectancy at Birth and Physicians per 1,000 People Country

Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Central African Republic Chad Congo, Dem. Rep. of Congo, Rep. of Côte d’Ivoire Egypt Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Madagascar Malawi Mali

Life Expectancy at Birth

Physicians per 1,000 People

1990

2004

Change (Percent)

67 40 53 64 48 44 52

71 41 55 35 48 44 46

6.0 2.5 3.8 (45.3) 0.0 0.0 (11.5)

0.9 0.0** 0.1 0.2 0.1 0.1 0.1

1.1 0.1 0.0** 0.4 0.3 0.0** 0.2

48 46

39 44

(18.8) (4.3)

0.0** 0.0**

0.1 0.0**

46 54 52 63 48 45 60 50 56 47 42 58 57 43 68 51 46 46

44 52 46 70 54 42 54 56 57 54 45 48 36 42 74 56 40 48

(4.3) (3.7) (11.5) 11.1 12.5 (6.7) (10.0) 12.0 1.8 14.9 7.1 (17.2) (36.9) (2.3) 8.8 9.8 (13.0) 4.3

0.3 0.3 0.1 0.8 n.a. 0.0** 0.5 n.a. 0.0** 0.1 n.a. 0.0** 0.0** n.a. 1.1 0.1 0.0** 0.1

0.2 0.2 0.1 0.5 0.1 0.0** 0.3 0.0** 0.2 0.1 0.1 0.1 0.0** 0.0** 1.3 0.3 0.0** 0.1

1990

1997–2004*

(continued) [╇ 113╇ ]

Africa and the World Trade Organization

Table 3.2╇ (continued) Country

Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda Senegal Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe World Low-income countries Sub-Saharan Africa South Asia

Life Expectancy at Birth 1990

2004

Change (Percent)

49 69 64 43 62 40 46 31 53 39 42 62 53 57 53 57 70 46 46 59 65

53 73 70 42 47 45 44 44 56 41 47 45 57 42 46 55 73 49 38 37 67

8.2 ╇ 5.8 ╇ 9.4 ╇ (2.3) (24.2) 12.5 ╇ (4.3) 41.9 ╇ 5.7 ╇ 5.1 11.9 (27.4) ╇ 7.5 (26.3) (13.2) (3.5) ╇ 4.3 ╇ 6.5 (17.4) (37.3) ╇ 3.1

56

59

49 59

46 63

*Data are for the most recent year available. **Less than 0.05. n.a., not available. Source:╇ World Bank (2006).

[╇ 114╇ ]

Physicians per 1,000 People 1990

1997–2004*

0.1 0.8 0.2 0.0** 0.2 0.0** 0.2 0.0** 0.1 n.a. n.a. 0.6 n.a. 0.1 n.a. 0.1 0.5 0.0** 0.1 0.1 1.6

0.1 1.1 0.5 0.0** 0.3 0.0** 0.3 0.0** 0.1 0.0** 0.0** 0.8 0.2 0.2 0.0** 0.0** 1.3 0.1 0.1 0.2 1.5

╇ 5.4

0.5

0.4

(6.1) ╇ 6.8

n.a. 0.5

0.1 0.5

Trade-Related Aspects of Intellectual Property Rights

Table 3.3╇ HIV/AIDS Estimates: 2005 Estimated Number of People Living with HIV/AIDS

Country Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Central African Republic Chad Comoros Congo, Dem. Rep. of Congo, Rep. of Côte d’Ivoire Djibouti Egypt Equatorial Guinea Eritrea Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Madagascar Malawi

Adult Rate (Percent)

Estimated Total AIDS Deaths (2005)

Adults and Children

Adults (Age 15 +)

19,000 320,000 87,000 270,000 150,000 150,000 510,000

19,000 280,000 77,000 260,000 140,000 130,000 470,000

0.1 3.7 1.8 24.1 2.0 3.3 5.4